The IMF has warned of rising risks to financial stability despite keeping its global growth outlook almost unchanged in its latest assessment of the world economy. In its World Economic Outlook (pdf) released yesterday, the Fund trimmed its 2023 forecast by just 0.1 percentage points to 2.8% but cautioned that sticky inflation and rapid policy tightening are presenting serious risks to the global economy.

Growth to bottom out this year: The IMF now expects global growth to fall to 2.8% this year from 3.4% in 2022. Much of the slowdown will take place in advanced economies — particularly the eurozone and UK — where growth will more than halve to 1.3%. Meanwhile, output in emerging and developing economies will remain strong, jumping from 2.8% to 4.5% in 4Q 2023.

Flatline: The Fund is forecasting growth to rebound to 3.0% next year and remain at the same level through to 2028.

“Serious side effects”: Growth projections may be little changed from the Fund’s last outlook three months ago, but the emphasis from IMF chief economist Pierre-Olivier Gourinchas was firmly on the intensifying financial risks caused by the dramatic rise in global interest rates over the past year. “The sharp policy tightening of the past 12 months is starting to have serious side effects for the financial sector,” he wrote, pointing to the instability in the UK gilt market last year and last month’s US banking crisis. “Below the surface, turbulence is building, and the situation is quite fragile.”

“Downside risks dominate”: “We are entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner,” Gourinchas wrote. Sharp policy tightening could have a “dramatic impact” on the global financial system that potentially causes growth to slow to as low as 2.5%. At the same time, the outlook for inflation remains highly uncertain and sticky prices could still force central banks to further raise interest rates in the coming months, he wrote.

The inflation outlook: The Fund is now predicting global headline inflation to fall to 7.0% this year from 8.7% in 2022, mainly thanks to lower energy and food prices. Core inflation — which excludes volatile food and energy prices — will see a slower decline to 5.1% by the final quarter of this year, an upward revision of 0.6 percentage points from the IMF’s January forecast.

THE EGYPT OUTLOOK-

Egypt growth outlook trimmed again: The IMF now expects Egypt’s economic growth to slow to 3.7% this year, a 0.3 percentage point trim from its previous forecast in January and a sizable drop from the 6.6% growth rate in 2022. The multilateral lender sees the economy expanding at a 5.0% clip in 2024 and 6.0% in 2028.

Inflation will cool off this year: Consumer price growth is expected to average 21.6% this year from 8.5% last year. That’s a dip from current inflation, which came in at 32.7% in March on the back of successive devaluations of the EGP. The IMF sees inflation continuing to slow to 18.0% in 2024 and 5.3% in 2028. The Central Bank of Egypt is currently targeting a 7% inflation rate — plus or minus two percentage points — by the end of 2024.

MENA outlook unchanged: The IMF trimmed its MENA growth outlook by 0.1 percentage points and now expects growth in the region to fall to 3.1% this year from 5.3% in 2022. Inflation across the region will remain unchanged from 2022 at 14.8%

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