IMF Increases Projected 2023 U.S. Economic Growth, Maintains Unaltered Global Prospects

10 Oct, 2023

IMF Increases Projected 2023 U.S. Economic Growth, Maintains Unaltered Global Prospects

The International Monetary Fund (IMF) unveiled its latest World Economic Outlook on Tuesday, revising its forecast for U.S. economic growth upwards, while projecting a deceleration in the expansion of the eurozone.

The IMF boosted its projection for U.S. growth in the current year by 0.3 percentage points compared to its July update, now standing at 2.1%. Additionally, it raised the forecast for the following year by 0.5 percentage points, reaching 1.5%. These improvements were attributed to robust business investments in the second quarter, resilient consumption growth amid a tight labor market, and an expansive fiscal stance adopted by the government. However, it is anticipated that growth will decelerate in the latter part of 2023 and into 2024 due to factors like slower wage growth, declining pandemic-related savings, tight monetary policies, and rising unemployment.

Conversely, the IMF adjusted its eurozone growth forecasts for 2023, reducing them by 0.2 percentage points to 0.7%, while also lowering the 2024 projections by 0.3 percentage points to 1.2%. This was in light of varying economic performances across major eurozone economies. For example, the German economy is expected to contract due to slowing trade and higher interest rates, while France's external demand has exceeded expectations, and industrial production has rebounded.

In the case of the United Kingdom, the IMF slightly upgraded its 2023 growth forecast to 0.5%. However, for 2024, it lowered the projection by 0.4 percentage points to 0.6%, citing the persistent effects of a terms-of-trade shock resulting from high energy prices. The IMF maintained its global growth forecast at 3% for the current year and raised its 2024 forecast by 0.1 percentage point to 2.9%.

The IMF's outlook highlighted the easing of several headwinds to global growth earlier in the year, with the World Health Organization no longer classifying Covid-19 as a global health emergency, normalized supply chains, and improved global financial conditions following the containment of turbulence in Swiss and U.S. banking sectors.

Nonetheless, challenges persist, including a slowdown in manufacturing, sluggish progress in certain service sectors, and synchronized central bank efforts to combat inflation through tightening measures.

The IMF noted that China's growth momentum, which had been robust following its stringent lockdown measures, is waning, primarily due to a property crisis. The IMF expects Chinese growth rates of 5% this year and 4.2% in the following year.