The global economy has recovered from the pandemic, but inflation and political tensions will rock most countries in 2023, the International Monetary Fund estimates. For their part, Canada, the United States and Mexico should avoid recession.
The International Monetary Fund (IMF) has reduced its growth forecast for the world economy from 2.9% to 2.8% for 2023, in a context marked by upheavals in the financial system. “The probability of witnessing a hard landing has increased sharply,” the organization said in its economic update.
According to its chief economist, Pierre-Olivier Gourinchas, inflation is not yet under control in several countries, which forces central banks to continue raising interest rates. There is an impact to be feared on the situation of the most indebted emerging countries and on the international financial system, warns the IMF.
As every year, the International Monetary Fund and the World Bank are meeting in Washington this week to discuss the evolution of the world economy and the challenges ahead. Between climate change and a possible debt crisis in the poorest countries, the two organizations also want to discuss the reforms to be made in their operation to better deal with these problems.
Bank of Canada Governor Tiff Macklem will be in Washington to meet with his counterparts from other central banks and provide Canada’s perspective on economic growth and inflation.
It will be a busy week for the central bank governor, who is due to present the Bank of Canada’s economic forecast update on Wednesday and announce his decision on interest rates.
Although most observers expect the policy rate to remain unchanged at 4.5%, Governor Macklem will have to explain how he sees things going in a still overheated economy. In its last report on monetary policy, in January, the Bank of Canada had forecast a growth rate of 0.5% in the first quarter of 2023 while the first estimates point to growth of around 3% for the three first months of the year.
The IMF has lowered its growth forecast for the global economy as a whole, but several countries are expected to do better than it had anticipated. This is the case in Europe, where growth is expected to be positive, with the notable exception of Germany, where a fall of 0.1% in GDP is expected. Among the so-called advanced countries, the United Kingdom will suffer the most, with an announced decline of 0.8% of GDP.
In North America, the threat of a recession is easing, according to the IMF. The US economy is expected to grow at the rate of 1.6% this year, which is a slight improvement on previous forecasts.
Canada, with anticipated economic growth of 1.5%, should also avoid recession, as should Mexico, third partner of the Canada-United States-Mexico Agreement (CUSMA), where GDP will increase by 1, 8% in 2023, predicts the IMF.
Even Russia is expected to experience positive growth in 2023. After a decline of 2.1% in 2022, the Russian economy is expected to grow by 0.7%. The income generated by oil, the price of which remains high, supports the Russian economy and offsets the effect of the economic sanctions which hit the country, explained the chief economist of the IMF.
