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27th July 2023 (8 Topics)

Resilient, but just: On the IMF’s economic outlook and lopsided growth

Context:

The International Monetary Fund’s latest update to its World Economic Outlook shows lopsided growth that bypasses poor nation’s risks weighing down the global economic pace.

IMF’s prediction:

  • Recovered effects of Bank collapses and instability: The World economy is showing signs of having weathered its most recent challenges, including the bank collapse in the U.S. and Switzerland, and likely poised to expand by 3% in 2023.
  • Slower recovery: As there are still many challenges that cloud around like yet to be resolved issues of U.S. debt ceiling standoff.
  • The heightened debt vulnerabilities: Many frontier economies stressed the urgent need for a concerted global debt resolution initiative to help countries from sliding into debt distress.

Present stance of Developed economies:

  • US & China facing crisis: The two largest economies, the United States and China, have slowed down appreciably and face increased uncertainty amid global and domestic headwinds.
  • Efforts of Cash transfers faded: The pandemic-era cash transfers, made to help families tide over the distress wrought by COVID-19 and the cost-of-living crisis in its aftermath, have all but depleted.
  • Changes in Consumption and demand: China’s downfall of real estate sector, combined with weakening consumption and slumping overseas demand for its exports is concernable.

Matter of concern:

  • On-going Russia-Ukraine war effects: World is still facing the Ukraine-war induced spike in gas prices with momentum decelerating especially in the largest regional economies of Germany and France.
  • Increasing Inflation: Particularly core inflation, remaining well above central banks’ targets, policymakers may be left with little option but to stay the course on inflation-taming but demand-retarding monetary tightening.
  • Global supply chain disruptions: Russia’s termination of the Black Sea grain deal could also push up grain prices, affecting some low-income economies in Africa.
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