IMF sees ‘pockets of resilience’

Global trade weakens, demand for services rises

WASHINGTON:

The International Monetary Fund (IMF) said on Thursday that first quarter global growth slightly outpaced projections in its April forecasts, but data since then has shown a mixed picture, with “pockets of resilience” alongside signs of slowing momentum.

IMF said in a briefing note for a G20 finance leaders meeting in India next week that manufacturing is showing weakness across G20 economies and global trade remains weak, but the demand for services is strong, particularly where tourism is recovering.

The IMF did not indicate any changes to its April 2023 global GDP growth forecast of 2.8% - down from 3.4% in 2022, but said that risks were “mostly” tilted to the downside. But the Fund said that inflation “seems to have peaked” in 2022.

Reduced supply chain disruptions and lower goods demand means likely disinflationary pressures from goods, it said. “However, services inflation – which is now the major driver of core inflation – is expected to take longer to decline.”

Strong consumer demand for services, buoyed by demand, buoyed by strong labour markets and the post-pandemic shift in spending from goods to services, is likely to sustain these price pressures, it said.

G20 policymakers should continue their fight against inflation, tightening monetary policy in many economies and maintaining real rates above neutral until “tangible signs of inflation returning to target emerge.”

But the IMF said policymakers will need to be vigilant for signs of financial sector stress, especially those brought about by interest rate risk and property sector stresses, and may need to deploy financial policy tools to contain them.

Published in The Express Tribune, July 14^th, 2023.

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