China one of few bright spots amid ‘rocky recovery’

The International Monetary Fund has cut its growth forecast for the world economy in 2023 by 0.1%age points. According to its latest World Economic Outlook, published on Tuesday, the organization now expects the global gross domestic product to grow by 2.8% this year, down from its January forecast of 2.9%.

“Tentative signs in early 2023 that the world economy could achieve a soft landing – with inflation coming down and growth steady – have receded amid stubbornly high inflation and recent financial sector turmoil,” the report finds. An while inflation has come down, the factors putting upward pressure on prices are proving sticky, all while the negative side effects of the rapid rise in policy interest rates come into focus, most notably in the banking sector.

Aside from inflation, many of the problems that weighed on the global economy in 2022 – high debt levels, the war in Ukraine and rising geopolitical tensions – have carried over into 2023, resulting in continued uncertainty and muted growth prospects.

The lifting of Covid restrictions in China and the expected rebound in economic activity in the country are the one major positive exception, providing a badly-needed boost to global growth prospects.

Not only will China’s reopening generate positive spillover effects for the many countries depending on exports to and tourism from China, but it will also help ease the supply constraints that have plagued the global economy for the better part of the past three years.

As the following chart shows, China and Japan are the only two among the world’s eight largest economies expected to see economic growth pick up this year. At the other end of the spectrum, advanced economies, particularly across Europe, are expected to see a substantial economic slowdown this year. (Statista)