INTERNATIONAL MONETARY FUND. Navigating Global Divergences (October 2023)

CONTENTS

Assumptions and Conventions

viii

Further Information

Data

Preface

xii

Foreword

xiii

Executive Summary

xvi

Chapter 1. Global Prospects and Policies

Growing Global Divergences

Outlook: Stable but Slow

Risks to the Outlook: Tilted to the Downside but More Balanced

Policy Priorities: From Disinflation to Sustained Growth

Box 1.1. Dimming Growth Prospects: A Longer Path to Convergence

Box 1.2. Risk Assessment Surrounding the World Economic Outlook’s Baseline Projections

Commodity Special Feature: Market Developments and the Commodity Price Channel of

Monetary Policy

References

Chapter 2. Managing Expectations: Inflation and Monetary Policy

Introduction

Recent Patterns in Inflation Expectations

Te Role of Expectations in Inflation Dynamics

Expectations Formation and Monetary Policymaking

Conclusions

Box 2.1. Firms’ Inflation Expectations, Attention, and Monetary Policy Effectiveness

Box 2.2. Fiscal Imprudence and Inflation Expectations: Te Role of Monetary

Policy Frameworks

Box 2.3. Energy Subsidies, Inflation, and Expectations: Unpacking Euro Area Measures

References

Chapter 3. Fragmentation and Commodity Markets: Vulnerabilities and Risks

Introduction

What Makes Commodities Vulnerable in the Event of Fragmentation?

Fragmentation in Commodity Markets

Which Commodities Are Most Vulnerable?

Economic Impacts of Commodity Market Fragmentation

Implications for the Clean Energy Transition

Summary and Policy Implications

Box 3.1. Commodity Trade Tensions: Evidence from Tanker Traffic Data

Box 3.2. Commodity Market Fragmentation in History: Many Shades of Gray

Box 3.3. Te Uneven Economic Effects of Commodity Market Fragmentation

References

International Monetary Fund | October 2023

iii

WORLD ECONOMIC OUTLOOK: NAVIGATING GLOBAL DIVERGENCES

Statistical Appendix

Assumptions

What’s New

Data and Conventions

Country Notes

Classification of Countries

General Features and Composition of Groups in the World Economic Outlook

Classification

Table A. Classification by World Economic Outlook Groups and Teir Shares in

Aggregate GDP, Exports of Goods and Services, and Population, 2022

Table B. Advanced Economies by Subgroup

100

Table C. European Union

100

Table D. Emerging Market and Developing Economies by Region and Main Source

of Export Earnings

101

Table E. Emerging Market and Developing Economies by Region, Net External Position,

Heavily Indebted Poor Countries, and Per Capita Income Classification

102

Table F. Economies with Exceptional Reporting Periods

104

Table G. Key Data Documentation

105

Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies

115

List of Tables

119

Output (Tables A1-A4)

120

Inflation (Tables A5-A7)

127

Financial Policies (Table A8)

132

Foreign Trade (Table A9)

133

Current Account Transactions (Tables A10-A12)

135

Balance of Payments and External Financing (Table A13)

142

Flow of Funds (Table A14)

146

Medium-Term Baseline Scenario (Table A15)

149

World Economic Outlook Selected Topics

151

IMF Executive Board Discussion of the Outlook, September 2023

161

Tables

Table 1.1. Overview of the World Economic Outlook Projections

Table 1.2. Overview of the World Economic Outlook Projections at

Market Exchange Rate Weights

Table 1.SF.1. Average Response of CPIs

Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices,

Current Account Balance, and Unemployment

Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices,

Current Account Balance, and Unemployment

Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices,

Current Account Balance, and Unemployment

Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP,

Consumer Prices, Current Account Balance, and Unemployment

Annex Table 1.1.5. Sub-Saharan African Economies: Real GDP, Consumer Prices,

Current Account Balance, and Unemployment

Annex Table 1.1.6. Summary of World Real per Capita Output

International Monetary Fund | October 2023

contents

Online Tables—Statistical Appendix

Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita

Table B2. Emerging Market and Developing Economies: Real GDP

Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor

Costs in Manufacturing

Table B4. Emerging Market and Developing Economies: Consumer Prices

Table B5. Summary of Fiscal and Financial Indicators

Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing

and General Government Net Lending/Borrowing Excluding Social Security Schemes

Table B7. Advanced Economies: General Government Structural Balances

Table B8. Emerging Market and Developing Economies: General Government

Net Lending/Borrowing and Overall Fiscal Balance

Table B9. Emerging Market and Developing Economies: General Government

Net Lending/Borrowing

Table B10. Selected Advanced Economies: Exchange Rates

Table B11. Emerging Market and Developing Economies: Broad Money Aggregates

Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of

Trade in Goods and Services

Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods

Table B14. Emerging Market and Developing Economies by Source of

Export Earnings: Total Trade in Goods

Table B15. Summary of Current Account Transactions

Table B16. Emerging Market and Developing Economies: Summary of

External Debt and Debt Service

Table B17. Emerging Market and Developing Economies by Region:

External Debt by Maturity

Table B18. Emerging Market and Developing Economies by Analytical Criteria:

External Debt by Maturity

Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP

Table B20. Emerging Market and Developing Economies: Debt-Service Ratios

Table B21. Emerging Market and Developing Economies, Medium-Term

Baseline Scenario: Selected Economic Indicators

Figures

Figure 1.1. Incomplete Recovery: Scarring from the Shocks of 2020-22

Figure 1.2. Te COVID-19 Shock: Returning to Normal

Figure 1.3. Cumulative Excess Savings in Advanced Economies

Figure 1.4. Tourism Returning to Normal

Figure 1.5. Slower Growth Momentum Ahead

Figure 1.6. China’s Economy Losing Momentum

Figure 1.7. Inflation Turning the Corner

Figure 1.8. Headline Inflation Distribution

Figure 1.9. Different Drivers: Inflation in Selected Economies

Figure 1.10. Labor Markets Still Tight but Easing

Figure 1.11. Little Evidence of Wage-Price Spirals

Figure 1.12. Profits and Labor Shares: Accounting for Inflation

Figure 1.13. Monetary Policy to Remain Tight

Figure 1.14. Credit Channel Active in US and EA

Figure 1.15. House Prices Slowing or Reversing, 2022-23

Figure 1.16. Monetary and Fiscal Policy Assumptions

Figure 1.17. Growth Outlook: Stable and Slow

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: NAVIGATING GLOBAL DIVERGENCES

Figure 1.18. Inflation Outlook: Falling

Figure 1.19. Headline Inflation Forecasts for Selected Economies

Figure 1.20. Inflation Mostly above Target until 2025

Figure 1.21. Forecasts of Global GDP

Figure 1.22. Current Account and International Investment Positions

Figure 1.23. Recession and Inflation Concerns over Time

Figure 1.24. Sovereign Spreads in Emerging Market and Developing Economies

Figure 1.25. Social Unrest Stable at Low Level

Figure 1.26. General Government Interest Payments

Figure 1.27. Firms Less Green in Emerging Market Economies

Figure 1.1.1. Five-Year-Ahead Growth Projections

Figure 1.1.2. Five-Year-Ahead Growth Projections: Country Groups

Figure 1.1.3. Projected Growth Deceleration in the Largest Economies

Figure 1.1.4. Per Capita Growth Forecast Decomposition

Figure 1.1.5. Medium-Term Growth and Income Convergence

Figure 1.2.1. Distribution of Forecast Uncertainty around Global GDP Growth and

Inflation Projections

Figure 1.2.2. Impact of Scenario on GDP Level and Core Inflation

Figure 1.SF.1. Commodity Market Developments

Figure 1.SF.2. Headline Inflation

Figure 1.SF.3. Peak Commodity Price Responses to a 10-Basis-Point US Monetary

Policy Shock

Figure 1.SF.4. Impulse Response Functions for a 10-Basis-Point US Monetary

Policy Shock

Figure 1.SF.5. Contribution of Oil and Food Prices in the Transmission of

US Monetary Policy Shocks

Figure 1.SF.6. Asymmetric Pass-Trough of Commodity Price Shocks

Figure 2.1. Cross-Economy Deviations of Inflation Expectations from Targets

Figure 2.2. Next-12-Months Mean Inflation Expectations by Economic Agent

Figure 2.3. Cross-Economy Distribution of Mean Inflation Expectations over Time

Figure 2.4. Historical Episodes with Persistently Rising Near- and Long-Term

Inflation Expectations

Figure 2.5. Estimated Effects of Alternative Inflation Expectations Measures on

Current Inflation

Figure 2.6. Key Coefficients of the Hybrid Phillips Curve

Figure 2.7. Associational versus Causal Estimated Effects of Inflation Expectations on

Current Inflation

Figure 2.8. Contributors to Recent Inflation Dynamics

Figure 2.9. State-Dependent Pass-Trough from Expectations to Inflation

Figure 2.10. Macroeconomic Responses to Shocks Conditional on

Agents’ Expectations Formation

Figure 2.11. Sacrifice Ratios under Alternative Expectations Processes

Figure 2.12. Soundness of Monetary Policy Frameworks and Forecast Rationality

Tests across Economies

Figure 2.13. Policy Interventions to Hasten the Reduction of Inflation and

Inflation Expectations

Figure 2.14. Policy Objectives, Social Welfare, and Expectations Formation

Figure 2.1.1. US Inflation and Firms’ Attention to the Federal Reserve

Figure 2.1.2. Role of Attention in Monetary Policy Effectiveness

International Monetary Fund | October 2023

contents

Figure 2.2.1. Inflation Expectations in Emerging Market and Developing Economies:

Monetary Policy Frameworks and Public Debt Interactions

Figure 2.3.1. Marginal Impacts of Fiscal Measures for Relief from the Energy Price Shock

on Inflation and Expectations

Figure 3.1. Fragmentation Keywords in Earnings Calls

Figure 3.2. Commodities: Key Characteristics

Figure 3.3. Commodity Trade and Distance of Military Alliances

Figure 3.4. Signs of Fragmentation

Figure 3.5. Price Changes Due to Fragmentation in Individual Commodity Markets

Figure 3.6. Wheat Price Increase in the US-Europe+ Bloc due to a Harvest Shock

Figure 3.7. Largest Price Increases Induced by a Single Exporter Switching Blocs

Figure 3.8. Surplus Changes due to Fragmentation in Individual Commodity Markets

Figure 3.9. Impact of Fragmentation on Real GDP and Inflation

Figure 3.10. Impact of Fragmentation of Critical Mineral Markets on Investment in

Renewables and Electric Vehicles, 2030

Figure 3.1.1. Changes in Tanker Shipments from Russia’s Ports from 2019:Q2 to 2023:Q2

Figure 3.3.1. Estimated Output Losses

Figure 3.3.2. Estimated GDP Losses in Low-Income Countries and Others

International Monetary Fund | October 2023

vii

ASSUMPTIONS AND CONVENTIONS

A number of assumptions have been adopted for the projections presented in the World Economic Outlook

(WEO). It has been assumed that real effective exchange rates remained constant at their average levels during July

25, 2023-August 22, 2023, except for those currencies participating in the European exchange rate mechanism

II, which are assumed to have remained constant in nominal terms relative to the euro; that established policies

of national authorities will be maintained (for specific assumptions about fiscal and monetary policies for selected

economies, see Box A1 in the Statistical Appendix); that the average price of oil will be $80.49 a barrel in 2023

and $79.92 a barrel in 2024; that the three-month government bond yield for the United States will average

5.3 percent in 2023 and 5.4 percent in 2024, that for the euro area will average 3.0 percent in 2023 and

3.2 percent in 2024, and that for Japan will average -0.2 percent in 2023 and -0.1 percent in 2024; and that

the 10-year government bond yield for the United States will average 3.8 percent in 2023 and 4.0 percent in 2024,

that for the euro area will average 2.4 percent in 2023 and 2.6 percent in 2024, and that for Japan will average

0.5 percent in 2023 and 0.6 percent in 2024. Tese are, of course, working hypotheses rather than forecasts,

and the uncertainties surrounding them add to the margin of error that would, in any event, be involved in the

projections. Te estimates and projections are based on statistical information available through September 25,

2023.

Te following conventions are used throughout the WEO:

• . . . to indicate that data are not available or not applicable;

•

- between years or months (for example, 2022-23 or January-June) to indicate the years or months covered,

including the beginning and ending years or months; and

•

/ between years or months (for example, 2022/23) to indicate a fiscal or financial year.

•

“Billion” means a thousand million; “trillion” means a thousand billion.

•

“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of

1 percentage point).

• Data refer to calendar years, except in the case of a few countries that use fiscal years. Please refer to Table F in

the Statistical Appendix, which lists the economies with exceptional reporting periods for national accounts and

government finance data for each country.

• For some countries, the figures for 2022 and earlier are based on estimates rather than actual outturns. Please

refer to Table G in the Statistical Appendix, which lists the latest actual outturns for the indicators in the

national accounts, prices, government finance, and balance of payments for each country.

What is new in this publication:

• Ecuador’s fiscal sector projections, which were previously omitted due to ongoing program discussions, are now

included.

• Eritrea’s data and projections for 2020-28 are excluded from the database due to constraints in data reporting.

• Sri Lanka’s projections for 2023-28 are excluded from publication owing to ongoing discussions on sovereign

debt restructuring.

• Ukraine’s projections for 2024-28, in line with the program’s baseline scenario, are now included.

• For West Bank and Gaza, certain projections for 2022-28 are excluded from publication pending methodological

adjustments to statistical series.

viii

International Monetary Fund | October 2023

Assumptions and Conventions

In the tables and figures, the following conventions apply:

• Tables and figures in this report that list their source as “IMF staff calculations” or “IMF staff estimates” draw

on data from the WEO database.

• When countries are not listed alphabetically, they are ordered on the basis of economic size.

• Minor discrepancies between sums of constituent figures and totals shown reflect rounding.

• Composite data are provided for various groups of countries organized according to economic characteristics or

region. Unless noted otherwise, country group composites represent calculations based on 90 percent or more of

the weighted group data.

• The boundaries, colors, denominations, and any other information shown on maps do not imply, on the part of

the IMF, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.

As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is

a state as understood by international law and practice. As used here, the term also covers some territorial entities

that are not states but for which statistical data are maintained on a separate and independent basis.

International Monetary Fund | October 2023

FURTHER INFORMATION

Corrections and Revisions

Te data and analysis appearing in the World Economic Outlook (WEO) are compiled by the IMF staff at the

time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are

discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and

on the IMF eLibrary (see below). All substantive changes are listed in the online table of contents.

Print and Digital Editions

Print copies of this WEO can be ordered from the IMF bookstore at imfbk.st/530521.

Digital

Multiple digital editions of the WEO, including ePub, enhanced PDF, and HTML, are available on the

IMF eLibrary at http://www.elibrary.imf.org/OCT23WEO.

Download a free PDF of the report and data sets for each of the charts therein from the IMF website at

www.imf.org/publications/weo or scan the QR code below to access the WEO web page directly:

Information on the terms and conditions for reusing the contents of this publication are at www.imf.org/external/

terms.htm.

International Monetary Fund | October 2023

DATA

Tis version of the World Economic Outlook (WEO) is available in full through the IMF eLibrary (www.elibrary.

imf.org) and the IMF website (www.imf.org). Accompanying the publication on the IMF website is a larger compi-

lation of data from the WEO database than is included in the report itself, including files containing the series most

frequently requested by readers. Tese files may be downloaded for use in a variety of software packages.

Te data appearing in the WEO are compiled by the IMF staff at the time of the WEO exercises. Te histori-

cal data and projections are based on the information gathered by the IMF country desk officers in the context

of their missions to IMF member countries and through their ongoing analysis of the evolving situation in each

country. Historical data are updated on a continual basis as more information becomes available, and structural

breaks in data are often adjusted to produce smooth series with the use of splicing and other techniques. IMF

staff estimates continue to serve as proxies for historical series when complete information is unavailable. As a

result, WEO data can differ from those in other sources with official data, including the IMF’s International

Financial Statistics.

Te WEO data and metadata provided are “as is” and “as available,” and every effort is made to ensure their

timeliness, accuracy, and completeness, but these cannot be guaranteed. When errors are discovered, there is a

concerted effort to correct them as appropriate and feasible. Corrections and revisions made after publication are

incorporated into the electronic editions available from the IMF eLibrary (www.elibrary.imf.org) and on the IMF

website (www.imf.org). All substantive changes are listed in detail in the online tables of contents.

Usage website (www.imf.org/external/terms.htm).

Inquiries about the content of the WEO and the WEO database should be sent by mail or online forum

(telephone inquiries cannot be accepted):

World Economic Studies Division

Research Department

International Monetary Fund

700 19th Street, NW

Washington, DC 20431, USA

Online Forum: www.imf.org/weoforum

International Monetary Fund | October 2023

PREFACE

Te analysis and projections contained in the World Economic Outlook are integral elements of the IMF’s

surveillance of economic developments and policies in its member countries, of developments in international

financial markets, and of the global economic system. Te survey of prospects and policies is the product of a

comprehensive interdepartmental review of world economic developments, which draws primarily on information

the IMF staff gathers through its consultations with member countries. Tese consultations are carried out

in particular by the IMF’s area departments—namely, the African Department, Asia and Pacific Department,

European Department, Middle East and Central Asia Department, and Western Hemisphere Department—

together with the Strategy, Policy, and Review Department; the Monetary and Capital Markets Department; and

the Fiscal Affairs Department.

Te analysis in this report was coordinated in the Research Department under the general direction of

Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research. Te project was directed by Petya

Koeva Brooks, Deputy Director, Research Department, and Daniel Leigh, Division Chief, Research Department.

Te primary contributors to this report are Silvia Albrizio, Jorge Alvarez, Mehdi Benatiya Andaloussi, John

Bluedorn, Christian Bogmans, Allan Dizioli, Christopher Evans, Christoffer Koch, Toh Kuan, Chiara Maggi,

Jorge Miranda Pinto, Jean-Marc Natal, Diaa Noureldin, Andrea Pescatori, Ervin Prifti, Marika Santoro,

Alexandre Sollaci, Martin Stuermer, Petia Topalova, and Philippe Wingender.

Other contributors include Omer Akbal, Gavin Asdorian, German Villegas Bauer, Jared Bebee, Nina Biljanovska,

Marijn Bolhuis, Damien Capelle, Jiaqian Chen, Seung Mo Choi, Yaniv Cohen, Mariarosaria Comunale, Marina

Conesa, Pedro de Barros Gagliardi, Wenchuan Dong, Angela Espiritu, Rebecca Eyassu, Carlos Goncalves, Ziyan

Han, Youyou Huang, Chris Jackson, Harri Kemp, Benjamin Kett, Divya Kirti, Gene Kindberg-Halon, Eduard

Laurito, Jungjin Lee, Nan Li, Weili Lin, Barry Liu, Rui Mano, Carlos Morales, Joseph Moussa, Peter Nagle,

Cynthia Nyanchama Nyakeri, Emory Oakes, Chris Papageorgiou, Clarita Phillips, Nicola Pierri, Rafael Portillo,

Evgenia Pugacheva, Tianchu Qi, Shrihari Ramachandra, Pedro Rodriguez, Muhammad Ahsan Shafique, Arash

Sheikholeslam, Pedro Vitale Simon, Alessandra Sozzi, Alessia de Stefani, Nicholas Tong, Filiz Unsal, Guillermo

Verduzco Bustos, Mona Wang, Isaac Pittman Warren, Yarou Xu, Fan Zhang, Jiaqi Zhao, Canran Zheng, Dian Zhi,

and Liangliang Zhu.

Gemma Rose Diaz from the Communications Department led the editorial team for the report, with

production and editorial support from Michael Harrup, and additional assistance from Lucy Scott Morales, James

Unwin, Nancy Morrison, Grauel Group, and Absolute Service, Inc.

Te analysis has benefited from comments and suggestions by staff members from other IMF departments, as

well as by Executive Directors following their discussion of the report on September 26, 2023. However, estimates,

projections, and policy considerations are those of the IMF staff and should not be attributed to Executive

Directors or to their national authorities.

xii

International Monetary Fund | October 2023

FOREWORD

Resilient Global Economy Is Limping Along,

China, facing growing headwinds from its real estate

with Growing Divergences

crisis and weakening confidence.

Tree global forces are at play. First, the recovery

Te global economy continues to recover slowly

in services is almost complete. Over the past year,

from the blows of the pandemic, Russia’s invasion of

strong demand for services supported service-oriented

Ukraine, and the cost-of-living crisis. In retrospect,

economies—including important tourism destinations

the resilience has been remarkable. Despite the disrup-

such as France and Spain—relative to manufactur-

tion in energy and food markets caused by the war,

ing powerhouses such as China and Germany. High

and the unprecedented tightening of global mon-

demand for labor-intensive services also translated into

etary conditions to combat decades-high inflation,

tighter labor markets, and higher and more persistent

the global economy has slowed, but not stalled. Yet

services inflation. But services activity is now weaken-

growth remains slow and uneven, with growing global

ing alongside a persistent manufacturing slowdown,

divergences. Te global economy is limping along, not

suggesting services inflation will decrease in 2024 and

sprinting.

labor markets and activity will soften.

Global activity bottomed out at the end of last

Second, part of the slowdown is the result of the

year while inflation—both headline and underlying

tighter monetary policy necessary to bring inflation

(core)—is gradually being brought under control. But

down. Tis is starting to bite, but the transmission

a full recovery toward prepandemic trends appears

is uneven across countries. Tighter credit conditions

increasingly out of reach, especially in emerging mar-

are weighing on housing markets, investment, and

ket and developing economies.

activity, more so in countries with a higher share of

According to our latest projections, global growth

adjustable-rate mortgages or where households are less

will slow from 3.5 percent in 2022 to 3 percent this

willing, or able, to dip into their savings. Firm bank-

year and 2.9 percent next year, a 0.1 percentage point

ruptcies have increased in the US and the euro area,

downgrade for 2024 from our July projections. Tis

remains well below the historical average.

although from historically low levels. Countries are

Headline inflation continues to decelerate, from 9.2

also at different points in their hiking cycles: advanced

economies (except Japan) are near the peak, while

percent in 2022, on a year-over-year basis, to 5.9 per-

some emerging market economies, such as Brazil and

cent this year and 4.8 percent in 2024. Core inflation,

Chile, have already started easing.

excluding food and energy prices, is also projected to

Tird, inflation and activity are shaped by the

decline, albeit more gradually than headline inflation,

to 4.5 percent in 2024.

incidence of last year’s commodity price shock.

As a result, projections are increasingly consistent

Economies heavily dependent on Russian energy

with a “soft landing” scenario, bringing inflation down

imports experienced a steeper increase in energy prices

without a major downturn in activity, especially in the

and a sharper slowdown. Some of our recent work

United States, where the forecast increase in unemploy-

shows that the pass-through from higher energy prices

ment is very modest, from 3.6 to 3.9 percent by 2025.

played a large role in driving core inflation upward in

But important divergences are appearing. Te

the euro area, unlike in the United States, where core

slowdown is more pronounced in advanced econo-

inflation pressures reflect instead a tight labor market.

mies than in emerging market and developing ones.

Despite signs of softening, labor markets in advanced

Within advanced economies, the US surprised on the

economies remain buoyant, with historically low unem-

upside, with resilient consumption and investment,

ployment rates helping to support activity. So far, there

while euro area activity was revised downward. Many

is scant evidence of a “wage-price spiral,” and real wages

emerging market economies proved quite resilient and

remain below prepandemic levels. Further, many coun-

surprised on the upside, with the notable exception of

tries experienced a sharp—and welcome—compression

International Monetary Fund | October 2023

xiii

WORLD ECONOMIC OUTLOOK: NAVIGATING GLOBAL DIVERGENCES

in the wage distribution. Some of this compression

excess savings in some countries, and adverse energy

reflects the higher amenity value of flexible and remote

price developments, inflation could become more

work schedules for high earners, reducing wage pres-

entrenched, requiring even more forceful action from

sures for that group.

central banks.

Fourth, fiscal buffers have eroded in many coun-

tries, with elevated debt levels, rising funding costs,

Risks

slowing growth, and an increasing mismatch between

While some of the extreme risks—such as severe

the growing demands on the state and available fiscal

banking instability—have moderated since April, the

resources (see the October 2023 Fiscal Monitor). Tis

balance remains tilted to the downside.

leaves many countries more vulnerable to crises and

First, the real estate crisis could deepen further in

demands a renewed focus on managing fiscal risks.

China, an important risk for the global economy. Te

Finally, despite the tightening of monetary policy,

policy challenge is complex. Restoring confidence

financial conditions have eased in many countries (see

requires promptly restructuring struggling property

the October 2023 Global Financial Stability Report).

developers, preserving financial stability, and address-

Te danger is of a sharp repricing of risk, especially

ing the strains in local public finance. If real estate

for emerging markets, that would appreciate further

prices decline too rapidly, the balance sheets of banks

the US dollar, trigger capital outflows, and increase

and households will worsen, with the potential for

borrowing costs and debt distress.

serious financial amplification. If real estate prices

are artificially propped up, balance sheets will be

Policies

protected for a while, but this may crowd out other

investment opportunities, reduce new construction

Under our baseline scenario, inflation continues

activity, and have an adverse impact on local govern-

to recede as central banks maintain a tight stance.

ment revenues through reduced land sales. Either way,

With many countries near the peak of their tightening

China’s economy needs to pivot away from a credit-

cycles, little additional tightening is warranted. How-

driven real estate model of growth.

ever, easing prematurely would squander the gains

Second, commodity prices could become more vol-

achieved in the past 18 months. Once the disinflation

atile under renewed geopolitical tensions and disrup-

process is firmly on its way and near-term inflation

tions linked to climate change. Since June, oil prices

expectations are decreasing, adjusting the policy rate

have increased by about 25 percent, on the back of

downward will allow the monetary policy stance, that

extended supply cuts from OPEC+ (the Organization

is, the real interest rate, to remain unchanged until

of the Petroleum Exporting Countries plus selected

inflation targets are in sight.

nonmembers) countries. Food prices remain elevated

Fiscal policy needs to support the monetary strategy

and could be disrupted further by an escalation of the

and help the disinflation process. In 2022, fiscal and

war in Ukraine, causing important hardship for many

monetary policies were pulling in the same direction,

low-income countries. Tis, of course, represents a

as many of the pandemic emergency fiscal measures

serious risk to the disinflation strategy. Geoeconomic

were unwound. In 2023, the degree of alignment has

fragmentation has also led to a sharp increase in

decreased. Most worrying is the case of the United

the dispersion in commodity prices across regions,

States, where the fiscal stance has deteriorated substan-

including critical minerals. As Chapter 3 of this report

tially. Fiscal policy in the US should not be procycli-

analyzes, this could pose serious macroeconomic risks

cal, even less so at this stage of the inflation cycle.

going forward, including to the climate transition.

More broadly, fiscal policy everywhere should focus on

Tird, while both underlying and headline infla-

rebuilding fiscal buffers that have been severely eroded

tion have decreased, they remain uncomfortably

by the pandemic and the energy crisis, for instance, by

high. Near-term inflation expectations have risen

removing energy subsidies.

markedly above target, although they now appear

We should also return our focus to the medium

to be turning a corner. As Chapter 2 of this report

term. Here the picture is becoming darker. Medium-

details, bringing these near-term inflation expecta-

term growth prospects are weak, especially for

tions back down is critical to winning the battle

emerging market and developing economies.

against inflation. With tight labor markets, ample

Te implications are profound: a much slower

xiv

International Monetary Fund | October 2023

FOREWORD

convergence toward the living standards of advanced

contravene World Trade Organization rules and

economies, reduced fiscal space, increased debt

distort international trade. Second, countries should

vulnerabilities and exposure to shocks, and dimin-

safeguard the flow of critical minerals needed for the

ished opportunities to overcome the scarring from

climate transition, as well as that of agricultural com-

the pandemic and the war.

modities. Such “green corridors” would help reduce

With lower growth, higher interest rates, and

volatility and accelerate the green transition.

reduced fiscal space, structural reforms become key.

Finally, all countries should aim to limit geoeco-

Higher long-term growth can be achieved through a

nomic fragmentation that prevents joint progress

careful sequence of structural reforms, especially those

toward common goals and instead work toward

focused on governance, business regulations, and

restoring trust in rules-based multilateral frameworks

the external sector. Tese “first-generation” reforms

that enhance transparency and policy certainty and

help unlock growth and make subsequent reforms—

help foster a shared global prosperity. A robust global

whether to credit markets, or for the green transi-

financial safety net with a well-resourced IMF at its

tion—much more effective.

center is essential.

Multilateral cooperation can help ensure that all

countries achieve better growth outcomes. First,

Pierre-Olivier Gourinchas

countries should avoid implementing policies that

Economic Counsellor

International Monetary Fund | October 2023

EXECUTIVE SUMMARY

Te global recovery from the COVID-19 pandemic

Risks to the outlook are more balanced than they

and Russia’s invasion of Ukraine remains slow and

were six months ago, on account of the resolution of

uneven. Despite economic resilience earlier this year,

US debt ceiling tensions and Swiss and US authorities’

with a reopening rebound and progress in reduc-

having acted decisively to contain financial turbulence.

ing inflation from last year’s peaks, it is too soon to

Te likelihood of a hard landing has receded, but

take comfort. Economic activity still falls short of its

the balance of risks to global growth remains tilted

prepandemic path, especially in emerging market and

to the downside. China’s property sector crisis could

developing economies, and there are widening diver-

deepen, with global spillovers, particularly for com-

gences among regions. Several forces are holding back

modity exporters. Elsewhere, as Chapter 2 explains,

the recovery. Some reflect the long-term consequences

near-term inflation expectations have risen and could

of the pandemic, the war in Ukraine, and increasing

contribute—along with tight labor markets--to core

geoeconomic fragmentation. Others are more cyclical in

inflation pressures persisting and requiring higher

nature, including the effects of monetary policy tight-

policy rates than expected. More climate and geopoliti-

ening necessary to reduce inflation, withdrawal of fiscal

cal shocks could cause additional food and energy price

support amid high debt, and extreme weather events.

spikes. As Chapter 3 explains, intensifying geoeconomic

Global growth is forecast to slow from 3.5 percent in

fragmentation could constrain the flow of commodities

2022 to 3.0 percent in 2023 and 2.9 percent in 2024.

across markets, causing additional price volatility and

Te projections remain below the historical (2000-19)

complicating the green transition. Amid rising debt-

average of 3.8 percent, and the forecast for 2024 is

service costs, more than half of low-income developing

down by 0.1 percentage point from the July 2023

countries are in or at high risk of debt distress.

Update to the World Economic Outlook. For advanced

Tere is little margin for error on the policy front.

economies, the expected slowdown is from 2.6 percent

Central banks need to restore price stability while

in 2022 to 1.5 percent in 2023 and 1.4 percent in

using policy tools to relieve potential financial stress

2024, amid stronger-than-expected US momentum but

when needed. As Chapter 2 explains, effective mon-

weaker-than-expected growth in the euro area. Emerg-

etary policy frameworks and communication are vital

ing market and developing economies are projected to

for anchoring expectations and minimizing the output

have growth modestly decline, from 4.1 percent in 2022

costs of disinflation. Fiscal policymakers should

to 4.0 percent in both 2023 and 2024, with a down-

rebuild budgetary room for maneuver and withdraw

ward revision of 0.1 percentage point in 2024, reflecting

untargeted measures while protecting the vulner-

the property sector crisis in China. Forecasts for global

able. Reforms to reduce structural impediments to

growth over the medium term, at 3.1 percent, are at

growth--by, among other things, encouraging labor

their lowest in decades, and prospects for countries to

market participation—would smooth the decline of

catch up to higher living standards are weak. Global

inflation to target and facilitate debt reduction. Faster

inflation is forecast to decline steadily, from 8.7 percent

and more efficient multilateral coordination is needed

in 2022 to 6.9 percent in 2023 and 5.8 percent in

on debt resolution to avoid debt distress. Coopera-

2024. But the forecasts for 2023 and 2024 are revised

tion is needed as well to mitigate the effects of climate

up by 0.1 percentage point and 0.6 percentage point,

change and speed the green transition, including (as

respectively, and inflation is not expected to return to

Chapter 3 explains) by ensuring steady cross-border

target until 2025 in most cases.

flows of the necessary minerals.

xvi

International Monetary Fund | October 2023

GLOBAL PROSPECTS AND POLICIES

Growing Global Divergences

policy stimulus, and greater feasibility of remote

work. Tese factors supported livelihoods during

More than three years after the global economy suf-

the pandemic, and household consumption is now

fered the largest shock of the past 75 years, the wounds

broadly back to prepandemic trends. Among advanced

are still healing, amid widening growth divergences

economies, private consumption has been stron-

across regions. After a strong initial rebound from the

ger in the United States than in the euro area, with

depths of the COVID-19 pandemic, the pace of recov-

households receiving larger fiscal transfers early in the

ery has moderated. Several forces are holding back the

pandemic and spending the associated savings more

recovery. Some reflect the long-term consequences of

quickly; being better insulated from the rise in energy

the pandemic, Russia’s war in Ukraine, and increasing

prices resulting from the war in Ukraine; and feeling

geoeconomic fragmentation. Others are more cyclical,

relatively confident amid historically tight US labor

including the effects of monetary policy tightening

markets, which have supported real disposable incomes

necessary to reduce inflation, withdrawal of fiscal sup-

(Figure 1.1, panel 2). Among emerging market and

port amid high debt, and extreme weather events.

developing economies, the consumption shortfall is

Despite signs of economic resilience earlier this year

particularly large in China, reflecting tight restrictions

and progress in reducing headline inflation, economic

on mobility during the COVID-19 crisis.

activity is still generally falling short of prepandemic

Divergences in labor market performance across

(January 2020) projections, especially in emerging

regions broadly mirror those for output and consump-

market and developing economies (Figure 1.1, panel 1).

tion. Employment and labor participation rates are

Te strongest recovery among major economies has

estimated to exceed prepandemic trends in advanced

been in the United States, where GDP in 2023 is esti-

economies but to remain significantly below them in

mated to exceed its prepandemic path. Te euro area

emerging market and developing economies, reflect-

has recovered, though less strongly—with output still

ing more severe output losses and much weaker social

2.2 percent below prepandemic projections, reflecting

greater exposure to the war in Ukraine and the associ-

protection. Countries that had the most limited fiscal

ated adverse terms-of-trade shock, as well as a spike in

space are also those where employment shortfalls are

the largest (ILO 2023). Among advanced economies,

imported energy prices. In China, the pandemic-related

the euro area has seen larger employment gains than

slowdown in 2022 and the property sector crisis con-

the United States. Tis may reflect more extensive use

tribute to the larger output losses of about 4.2 percent,

in the former of worker-retention programs modeled

compared with prepandemic predictions. Other

emerging market and developing economies have seen

on the German Kurzarbeit short-time work scheme

even weaker recoveries, especially low-income countries,

(IMF 2020), which protect workers’ income and

where output losses average more than 6.5 percent.

allow businesses to retain firm-specific human capital,

Higher interest rates and depreciated currencies have

reducing the costly process of separation, rehiring, and

exacerbated the difficulties of low-income countries,

training. In the euro area, these programs bolstered

placing more than half either at high risk of distress or

employment during the most challenging phases of

already in distress. Overall, global output for 2023 is

the crisis and accelerated the recovery when economies

estimated at 3.4 percent (or about $3.6 trillion in 2023

reopened (Figure 1.1, panel 3).

prices) below prepandemic projections.

Investment, on the other hand, has uniformly fallen

Private consumption has also recovered faster in

short of prepandemic trends across regions. Businesses

advanced economies than in emerging market and

have shown less enthusiasm for expansion and risk

developing economies, owing to an earlier reopening

taking amid rising interest rates, withdrawal of fiscal

in the former group facilitated by greater availability

support, dimmer prospects for product demand,

of effective vaccines, stronger safety nets, more ample

stricter lending conditions, and growing uncertainties

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Figure 1.1. Incomplete Recovery: Scarring from the Shocks

Figure 1.2. The COVID-19 Shock: Returning to Normal

of 2020-22

(Standard deviations from average value; index, 100 = highest point

(Percent; deviation in 2023 from prepandemic projections)

worldwide during 2008-23, on right scale)

100

1. Real GDP Loss

-2

-4

-6

-8

AEs

World

China

EMDEs

LIDCs

Global Supply Chain Pressure Index

-1

–20

Google Trends interest in COVID-19 (right scale)

2. Real Domestic Demand Shortfall

-2

–40

July

Jan.

July

Jan.

July

Jan.

July

Jan.

Aug.

2019

Sources: Federal Reserve Bank of New York, Global Supply Chain Pressure Index;

Google Trends.

-3

Note: On right scale, numbers represent search interest relative to the highest

point (100) during 2008-23 worldwide.

-6

Private consumption

Capital formation

-9

-12

75 million to 95 million more people were living in

AEs

World

China

EMDEs

LIDCs

extreme poverty in 2022 compared with prepandemic

3. Labor Market Scarring

estimates. Spikes in food prices and related insecurities

following Russia’s invasion of Ukraine, as well as bouts

of extreme weather, have accentuated these difficulties.

Te global average temperature in July 2023 was the

highest on record for any month, amid reports of cat-

-2

astrophic flooding, heat waves, and wildfires in many

-4

regions. Overall, the global prevalence of undernour-

Employment

-6

Participation

ishment is significantly higher than before the pan-

demic (FAO and others 2023).

-8

AEs

World

China

EMDEs

LIDCs

Source: IMF staff calculations.

Resilient Start to 2023, Signs of Slowdown

Note: “Prepandemic projections” refers to those in the January 2020 World

Economic Outlook Update. AEs = advanced economies; EA = euro area; EMDEs =

Despite these persistent challenges, several head-

emerging market and developing economies; LIDCs = low income developing

winds to global growth subsided earlier this year. Te

countries.

World Health Organization announced in May that

it no longer considered COVID-19 a global health

regarding geoeconomic fragmentation. Higher leverage

emergency, and infections and hospitalizations appear

has further dampened investment (see Chapter 2 of

to remain relatively limited, despite a recent uptick

the April 2022 World Economic Outlook [WEO]),

in some regions. Supply chains, which the pandemic

which remains 3 percent to 10 percent lower across

disrupted, have largely normalized, with shipping costs

regions than had been projected before the pandemic

and suppliers’ delivery times back to prepandemic lev-

(Figure 1.1, panel 2).

els (Figure 1.2). And global financial conditions eased

Moreover, the pandemic, war in Ukraine, and wors-

after Swiss and US authorities took strong action in

ening climate shocks have contributed to a reversal in

March to contain turbulence in their banking sectors.

decades-long poverty reduction trends. According to

Amid these conditions, global GDP expanded by

World Bank staff estimates (Mahler and others 2022),

3.4 percent in the second quarter of 2023 compared

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.3. Cumulative Excess Savings in Advanced

Figure 1.4. Tourism Returning to Normal

Economies

(Percent of GDP)

180

1. Monthly Arrivals of Foreign Visitors

Southern Europe

(Index, Dec. 2019 = 100)

160

Rest of Europe

140

United Kingdom

United States

120

100

Asia excl. China

Latin America and the Caribbean

Rest of world

Jan.

Apr.

2015

United States

United Kingdom

–2

France

Germany

2. Tourism Dependence versus Growth Performance, 2021-23

Italy

Spain

MAC

MDV

–4

2019:Q3

20:Q1

20:Q3

21:Q1

21:Q3

22:Q1

22:Q3

23:

ABW

BHS

Source: de Soyres, Moore, and Ortiz (2023).

SYC

Note: Stock begins accumulating from 0 at t = -1, in which t = 0 is the first period

of low growth due to COVID-19. Excess savings are calculated as deviation from

-20

the predicted saving rate using a Hamilton trend.

High tourism

Other

–40

-60

with a year earlier--outperforming forecasts, including

Tourism activities, 2019 (percent of GDP)

those in the April 2023 WEO. Te resilience reflected

strong consumption amid tight labor markets in the

Sources: Haver Analytics; World Travel & Tourism Council; and IMF staff

calculations.

United States and robust activity in economies with

Note: In panel 1, series is the normalized sum of arrivals for each region based on

large travel and tourism sectors, such as Italy, Mexico,

data for 41 economies. In panel 2, the x-axis measures the direct share of travel

and tourism in GDP in 2019. The growth surprise on the y-axis measures the

and Spain. Tese developments offset a slowdown in

difference between the cumulative GDP growth in 2021-23 and its projected value

more interest-rate-sensitive manufacturing sectors.

in the January 2020 World Economic Outlook Update. Data labels in the figure use

Tat said, there are signs the rebound is fading:

International Organization for Standardization (ISO) country codes. excl. =

excluding.

••

Diminishing pandemic-era savings: The stock of

savings built during the pandemic, which has so

far supported consumers, is declining in advanced

(Figure 1.4, panel 2). These economies had suffered

economies, especially the United States, as illus-

especially sharp contractions in GDP at the onset of

trated in Figure 1.3.¹ This implies fewer resources

the pandemic (Milesi-Ferretti 2021). But with the

for households to draw on as they contend with a

recovery in tourism maturing, the boost to growth

still-elevated cost of living and more restricted credit

is waning.² Leading indicators for services now indi-

availability in the context of monetary tightening

cate weaker growth or declining output (Figure 1.5,

aimed at reducing inflation.

panel 2) in economies that previously enjoyed a

••

Slowing catch-up in services, including travel: Interna-

strong rebound.

tional tourist arrivals are approaching prepandemic

••

Persistent manufacturing slowdown: Recent data

levels in most regions (Figure 1.4, panel 1). The

releases point to a wide-ranging slowdown or con-

recovery of travel during 2021-23 has come with

traction in the manufacturing sector, with related

especially strong economic growth in economies

declines in industrial production, investment, and

with a large share of tourism activities in GDP

international trade in goods. This weakness reflects

¹Estimates of the stock of excess household savings—the cumu-

²A tourism share that is higher by 10 percentage points of GDP

lation of saving beyond the prepandemic trend—come with a range

comes with cumulative growth that is higher by 12 percentage points

of uncertainty and can differ across methodological approaches. For

in 2021-23 (Figure 1.4, panel 2), but for 2023 alone, the relation-

the United States, they generally show a consistent pattern, with the

ship is less than half as strong. Higher-tourism-share economies

stock declining (see, for example, Abdelrahman and Oliveira 2023).

suffered sharper contractions in 2020 (Milesi-Ferretti 2021).

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Figure 1.5. Slower Growth Momentum Ahead

Signs that tightening efforts are paying off are increas-

ingly apparent, with global inflation steadily declining

1. Industrial Production and Trade to Weaken Further

from its multidecade peak in 2022 amid tighter credit

(Percent, year over year; index, 50+ = expansion,

on right scale)

availability and cooling housing markets. Part of the

slowdown also reflects more idiosyncratic develop-

ments, such as the property sector crisis in China.

–10

AEs: industrial production

EMDEs: industrial production

China: Slower Growth

–20

World trade volume

–30

AEs: PMI manufacturing (right scale)

China’s growth momentum is fading following a

-40

COVID-19 reopening surge in early 2023. Growth

2012

slowed from 8.9 percent in the first quarter of 2023

2. Services Rebound Fading, Manufacturing Weak

(seasonally adjusted annualized quarterly rate) to

(Index, 50+ = expansion)

AEs: PMI services

4.0 percent in the second quarter. With ample eco-

EMDEs: PMI services

nomic slack and declining energy and food prices,

AEs: PMI mfg output index

inflation fell to an estimated 0.2 percent (year over

AEs: PMI mfg backlog of work index

year) in the second quarter of 2023.

High-frequency indicators suggest further weakness

with the property sector crisis in the country leading

the factors hampering growth. Country Garden—

China’s largest property developer and a major benefi-

July

Nov.

Mar

July

Nov.

Mar.

Aug.

ciary of government support—is facing severe liquidity

2021

stress, a sign that real estate distress is spreading to

stronger developers, despite policy easing measures.

3. Consumer and Business Confidence Still Low

(Standard deviations from average value)

Property developers face severe funding constraints,

preventing them from completing presold homes. Tis

is undermining home buyer confidence and prolonging

the property sector downturn. Meanwhile, real estate

investment and housing prices continue to decline,

putting pressure on local governments’ revenues

-2

United States

Euro area

from land sales and threatening already fragile public

China

finances (Figure 1.6, panel 1).

–4

July

Jan.

July

Jan.

Aug.

Tese developments, together with labor market

2021

uncertainty—as reflected in elevated youth unemploy-

ment that reached more than 20 percent in June 2023

Sources: Haver Analytics; and IMF staff calculations.

Note: Solid lines in panel 3 show consumer confidence, and dashed lines denote

(Figure 1.6, panel 2)—have weighed on consumption.

business confidence. AEs = advanced economies; EMDEs = emerging market and

Consumer confidence remains subdued despite the

developing economies; mfg = manufacturing; PMIs = purchasing managers’

indexes.

economy’s reopening in the first quarter. Industrial

production, business investment, and exports are also

weakening, reflecting a combination of waning foreign

the combined effects of the postpandemic shift in

demand and geopolitical uncertainty. Commodity

consumption back toward services, weaker demand

exporters and countries that are part of the Asian

stemming from a higher cost of living, the unwind-

industrial supply chain are the most exposed to China’s

ing of crisis policy support, tighter credit conditions,

loss of momentum.

and general uncertainty amid intensified geoeco-

nomic fragmentation (Figure 1.5, panel 1).

Inflation: Nearer, but Not Quite There

Part of the slowdown is policy induced--the result

Global headline inflation has more than halved,

of the globally synchronous central bank tighten-

from its peak of 11.6 percent in the second quarter of

ing of monetary conditions to restore price stability.

2022 (at a quarterly annualized rate) to 5.3 percent

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.6. China’s Economy Losing Momentum

Figure 1.7. Inflation Turning the Corner

(Three-month annualized percent change, seasonally adjusted)

1. Deepening Real Estate Downturn

(Year-over-year percent change in 12-month moving sums)

Median country

United States

Euro area

Brazil

China

Japan

1. Headline Inflation

-20

Real investment (PPI-adjusted)

Starts

-40

Sales

-60

July

July July

2012

-5

2. Youth Unemployment Trending Up

-10

(Percent)

Jan.

July

Jan.

July

Jan.

July

Jan.

July

Jan.

July

2019

2. Core Inflation

Urban unemployment rate

Urban unemployment rate, ages 16-24

Urban unemployment rate, ages 25-59

Jan.

Jan. June

2018

-5

Sources: CEIC Data Company Limited; Haver Analytics; and IMF staff calculations.

-10

Note: In panel 1, real investment denotes PPI-adjusted fixed asset investment in

Jan.

July

Jan.

July

Jan.

July

Jan.

July

Jan.

July

real estate sector. The figure shows year-over-year percent change of housing

2019

starts and sales measured in square meters. PPI = producer price index.

Sources: Haver Analytics; and IMF staff calculations.

Note: The figure shows the developments in headline and core inflation across 17

emerging market and developing economies and 18 advanced economies. The 35

in the second quarter of 2023. About four-fifths of

sample economies account for approximately 81 percent of 2022 world output.

Core inflation is the change in prices for goods and services, excluding those for

the gap between the 2022 peak and the prepandemic

food and energy (or the closest available measure). For the euro area (and other

(2017-19) annual average level of 3.5 percent has

European countries for which data are available), energy, food, alcohol, and

closed. Among major economies, headline inflation in

tobacco are excluded. The grey band depicts the 25th to 75th percentiles of

inflation across countries.

the second quarter of 2023 ranged from -0.1 percent

in China (at a quarterly annualized rate) to 2.8 percent

in the euro area and 2.7 percent in the United States

(Organization of the Petroleum Exporting Countries

(Figure 1.7). A narrowing in the cross-country varia-

plus selected nonmember countries) were partly offset

tion in headline inflation has accompanied the decline.

by strong oil output growth in non-OPEC countries,

As Figure 1.8 reports, the international distribution

most notably the United States. Natural gas prices

of inflation rates widened during the 2022 inflation

also remain well below their 2022 peak, reflecting

surge, becoming skewed upward, but has since begun

ample storage and supplies from Norway and north-

to normalize.

ern Africa. Food prices have declined modestly in

A fall in energy prices and—to a lesser extent--in

2023, with lower demand offset by supply reductions,

food prices has driven the decline in headline inflation.

notably those resulting from Russia’s withdrawal from

As the Commodity Special Feature in this chapter

the Black Sea Grain Initiative in July, which reduced

reports, notwithstanding a rebound in July, crude oil

the supply of wheat to the global market. Te normal-

prices have declined during 2023 and are well below

ization of supply chains has further contributed to the

their June 2022 peak, on the back of lower global

decline in headline inflation in most countries.

demand partly driven by tighter global monetary

Underlying (core) inflation has also declined, but

policy affecting activity. Supply curbs by OPEC+

more gradually. Global inflation excluding food and

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Figure 1.8. Headline Inflation Distribution

these factors have differed markedly across economies.

(Percent, year over year)

Demand pressures in some advanced economies arose

from significant COVID-19-era fiscal payments to

July 23

households, as well as from ample monetary policy

stimulus early in the pandemic, which supported the

recovery in consumer spending. Tese policy-induced

Apr. 23

pressures declined as policy support subsided.

Pass-through effects include the effects of past relative

Jan. 23

price shocks—notably those to the price of energy—

on prices and costs in other industries through

Oct. 22

supply chain inputs and wage demands. An important

pass-through channel is, as Chapter 2 explains, the

rise in near-term inflation expectations, which has

July 22

implications for both wage and price setting. IMF staff

analysis (Figure 1.9) suggests that in the euro area and

Apr. 22

the United Kingdom, pass-through from past relative

price movements--in particular that from energy price

Jan. 22

shocks associated with external factors--has recently

played a larger role than in the United States in driving

core inflation (the staff’s methodology was the same as

Oct. 21

that used in Dao and others 2023).

In the United States, labor market tightness has

July 21

been an especially strong driver. Although labor

markets remain tight, especially in the United States,

Apr. 2021

the recent decline in the ratio of vacancies to the

-5

number of unemployed people suggests some easing

Sources: Organisation for Economic Co-operation and Development; and IMF staff

(Figure 1.10). Wage growth has remained contained,

calculations.

with wage-price spirals—in which prices and wages

Note: The figure shows the density distribution of headline inflation developments

across 29 advanced economies and 11 emerging market and developing

accelerate together for a sustained period—not gener-

economies.

ally taking hold in advanced economies (Figure 1.11).

At the same time, evidence shows that wages at the

bottom of the distribution have risen faster than

energy prices is down from a peak of 8.5 percent in

the average, compressing the wage distribution.

the first quarter of 2022 (at a quarterly annualized

Longer-term inflation expectations have remained well

rate) to 4.9 percent in the second quarter of 2023,

anchored and contributed little to recent movements

nearly two-thirds of the way back to the prepandemic

in core inflation (Figure 1.9; Chapter 2).

(2017-19) annual average of 2.8 percent. Among

Company profits have increased robustly over the

major economies, in the second quarter of 2023,

past two years, with wages having risen more slowly

it ranged from 0.3 percent in China (at a quarterly

than prices (Figure 1.12). For the United States and

annualized rate) to 4.6 percent in the euro area

the euro area, a decomposition of the GDP deflator

and 4.7 percent in the United States. Data for July

into labor costs and profits shows that in the early

indicate a rise in inflation excluding food and energy

phase of the pandemic (2020-21), profits accounted

in most advanced economies; more data releases

for most of the rise in prices. But since 2022, labor

are needed to assess progress in reducing underly-

costs have contributed an increasing share to rising

ing inflation.

prices—particularly in the United States. Te rise

Te drivers of core inflation have reflected a combi-

in profits (sales revenue minus all costs) does not

nation of demand pressures, as shown in labor market

necessarily signal increased monopoly power, with

conditions and pass-through effects from past shocks

firms deliberately limiting supplies to raise prices in

to headline inflation shocks, including those arising

excess of the cost of producing an additional unit of

from supply shifts in various industries. Te roles of

output (marginal cost). Profits can rise when a surge

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.9. Different Drivers: Inflation in Selected Economies

Figure 1.10. Labor Markets Still Tight but Easing

(Percentage points; three-month annualized inflation; deviation from

December 2019)

1. Unemployment Rates

(Percent)

Pass-through effects

Latest

Dec. 2019

Headline inflation shocks

Longer-term expectations

Underlying (core) inflation

Labor market tightness

Residual

1. United States

-2

1.2

2. Vacancy-to-Unemployment Ratios

-4

(Change in vacancies per unemployed relative to 2019:Q4)

-6

0.8

AUS

CAN

-8

JPN

GBR

Jan.

July

Jan.

July

0.4

USA

EUR

2020

0.0

2. Euro Area

-0.4

-0.8

-1.2

2019:Q4

20:Q2

20:Q4

21:Q2

21:Q4

22:Q2

22:Q4

23:

Sources: Eurostat; Haver Analytics; national statistics agencies; Organisation for

Economic Co-operation and Development; and IMF staff calculations.

-2

Note: Data labels in the figure use International Organization for Standardization

-4

(ISO) country codes. EA = euro area; EUR = Europe.

Jan.

July

Jan.

July

2020

3. United Kingdom

marginal cost) across various sectors in major advanced

economies during 2019-22.³ Similarly, Colonna,

Torrini, and Viviano (2023) conclude that despite

profit share increases, firm markups were unchanged

or declined across several sectors in Germany and

Italy during 2022. Overall, these results suggest that

a rise in market power did not significantly contrib-

ute to the inflation surge of 2022. Moreover, there is

-4

some evidence that since 2022, rising labor costs have

Jan.

July

Jan.

July

accounted for a significantly larger share of US price

2020

increases than profits.

Source: IMF staff calculations.

Even as central banks have taken decisive action,

Note: Underlying (core) inflation denotes weighted median inflation. Methodology

is as in Dao and others (2023) and Ball, Leigh, and Mishra (2022).

inflation remains above target in almost all economies

with an inflation target. Among major central banks

³Te IMF staff’s methodology is that illustrated in Box 1.2 of the

in demand meets supply constraints or when sup-

October 2022 World Economic Outlook. Te “economic markup”

ply constraints tighten, implying higher prices, and

(a producer’s price over true marginal costs, inclusive of the shadow

wages do not immediately adjust. As wages start to

cost of supply constraints) may be constant even while accounting

profits (total revenue minus costs) may show an increase. If supply

rise, profits can be expected to erode. Accordingly,

constraints remain, and nominal wages start to rise, prices could

IMF staff analysis based on firm-level data indicates

then remain unchanged, with the true markup remaining constant

little change in firms’ markups (prices in excess of

but accounting profits declining.

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Figure 1.11. Little Evidence of Wage-Price Spirals

Figure 1.12. Profits and Labor Shares: Accounting for

(Percentage point deviation from t = 0)

Inflation

(Percent, annualized)

10th-90th percentile

Median

Labor share

Profit share

Other input share

COVID-19 average, 2021:Q4 = 0

US, 1979:Q2 = 0

2010-19

1. Consumer Price Inflation

2020-21

2022-23:Q1

-2

2010-19

-4

2020-21

-6

-3

-2

-1

2022-23:Q1

2. Nominal Wage Growth

Sources: Eurostat; US Bureau of Economic Analysis; and IMF staff calculations.

Note: US decomposition uses data on factor shares from the nonfinancial

corporate sector only. Euro area decomposition is based on whole-economy data.

-2

with inflation above target, the Bank of Canada, the

Bank of England, the European Central Bank, and

-4

the Federal Reserve all raised rates in July. Te Bank

-6

-3

-2

-1

of Japan has continued with monetary easing but in

July decided to allow more flexibility in the conduct

3. Real Wage Growth

of yield curve control such that the 10-year yield

can now rise up to 1 percent. Te largest exception

to this pattern is China, where headline inflation is

subdued and below the authorities’ target and the

People’s Bank of China reduced interest rates in

June and August.

-2

-4

Tighter Monetary Policy, Tighter Credit

-6

-3

-2

-1

Acute stress in the banking sector has receded.

Sources: International Labour Organization; Organisation for Economic Cooperation

Te March 2023 banking scare remained contained

and Development; US Bureau of Economic Analysis; and IMF staff calculations.

and limited to problematic regional banks in the

Note: In panel 1, inflation is the year-over-year percent change in the CPI. In

panels 2 and 3, nominal and real wages are defined on a per-worker basis.

United States and Credit Suisse--a Swiss globally

Growth is calculated year over year. The real wage is the nominal wage divided by

systemically important bank--on account of swift

the CPI. The figure shows developments following episodes in which at least three

reaction by authorities in both countries. However,

of the preceding four quarters have (1) accelerating prices or rising price inflation,

(2) positive nominal wage growth, (3) falling or constant real wages, and (4) a

rapid rate hikes in major advanced economies over

declining or flat unemployment rate. Twenty-three such episodes are identified

the past 18 months, a necessary response to rapidly

within a sample of 33 advanced economies. Data for the COVID-19 episode are

the average of data for economies in the sample starting in 2021:Q4. The x-axis

rising inflationary pressures, have resulted in a tight

shows quarters after episodes. See Chapter 2 of the October 2022 World

monetary policy stance—real rates above neutral

Economic Outlook for details. CPI = consumer price index.

rates—that is expected to endure well into 2025

(Figure 1.13). And signs are that tighter monetary

policy has started to work its way through the finan-

cial system. Lending surveys in the United States and

Europe suggest that banks restricted access to credit

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.13. Monetary Policy to Remain Tight

Figure 1.14. Credit Channel Active in US and EA

(Percentage points)

120

1. Tighter Credit Standard, Lower Investment Demand

(Business loan index; percent change, year over year on

right scale)

Chg in real private fixed investment (right scale)

Business loan demand

Lending standards for business loans

-2

-40

-10

-4

-6

-80

-20

United Kingdom

2005

23:

United States

-8

Euro area

1.6

2. Contracting Credit

-10

(Percent change, month over month)

2019

1.2

Sources: Bloomberg Finance L.P.; Consensus Economics; Haver Analytics; Platzer

0.8

and Peruffo (2022); and IMF staff calculations.

Note: The figure shows the evolution of the monetary policy stance, defined as the

0.4

difference between real interest rates and the real natural rate of interest. The real

interest rate is defined as the difference between the policy rate (actual until June

0.0

2023 and market implied from Bloomberg after that) and one-year-ahead inflation

EA: Chg in credit to residents

expectations. For the United Kingdom and the United States, inflation expectations

-0.4

US: Chg in credit from all commercial banks

are market-based and computed from inflation swaps. For the euro area, inflation

expectations are from Consensus Economics surveys, and the real natural rate of

-0.8

interest is the weighted average of data for France and Germany.

June

Oct.

Feb.

June

Oct.

Feb.

July

2021

considerably over the past year and were expected

Sources: European Central Bank; Federal Reserve Board; Haver Analytics; and IMF

staff calculations.

to continue to do so in coming months. And there

Note: In panel 1, lending standards and loan demand are based on answers to the

are also clear signs that tighter credit conditions are

Federal Reserve Board’s Senior Loan Officer Opinion Survey on Bank Lending

Practices and its European counterpart; positive values indicate that lending

increasingly affecting real activity. In advanced econ-

standards have been tightened or credit demand has increased on balance in the

omies, credit and investment demand contracted in

preceding three months. Data for both business loan demand and lending

standards are simple averages of data from US and EA responses. Real private

the first half of the year, reflecting tighter supply as

fixed investment is the purchasing-power-parity-weighted average of data for US

well as lower demand for credit, as many businesses

and EA. Chg = change; EA = euro area.

began to deleverage in response to higher interest

rates and production overcapacity (Figure 1.14).

Figure 1.15. House Prices Slowing or Reversing, 2022-23

Higher interest rates are likely to put banks under

(Cumulated percent change)

increasing pressure in major economies, both directly

(through higher cost of funding) and indirectly (as

Change in house prices, 2021:Q4-2022:Q3

credit quality deteriorates). Housing markets have

Change in house prices, 2022:Q3-2023:Q1

already been reacting, with house prices slowing or

Total change in house prices, 2021:Q4-2023:Q1

reversing since the beginning of the tightening cycle

in several countries (Figure 1.15), and bankruptcy

rates have increased in some economies (increasing by

20 percent in the United States over the last year) as

pandemic-time forbearance measures are phased out.

Bankruptcies remain lower than before the pandemic

in most countries but are rising rapidly.

-5

Debt markets have started to reflect tighter mon-

etary policy, whereas spreads to risk-free government

-10

debt have stayed more or less constant. Tis suggests

that although credit conditions have tightened

Sources: Bank for International Settlements; and IMF staff calculations.

significantly, there is no immediate indication of a

Note: Data labels in the figure use International Organization for Standardization

credit crunch.

(ISO) country codes.

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Outlook: Stable but Slow

Figure 1.16. Monetary and Fiscal Policy Assumptions

Te latest projections confirm that the global

1. Policy Rates in Selected Advanced Economies

(Percent, annualized)

economy is slowing as inflation declines from last

year’s multidecade peak. A contraction in global per

capita real GDP—which often happens in a global

recession—is not part of the baseline scenario. Growth

and employment in the first half of the year remained

United States

Euro area

more resilient than forecast in the April 2023 WEO.

Japan

United Kingdom

Although there is little change in the forecast for the

global average since the July 2023 WEO Update,

-1

several shifts in growth and inflation prospects are

2022:Q1

23:Q1

24:Q1

25:Q1

26:Q1

27:Q1

28:Q1

28:

observed across countries. In addition, medium-term

prospects for economic growth remain the lowest in

2. Change in Structural Primary Fiscal Balance, 2021-24

(Percent of potential GDP)

decades, with middle- and lower-income countries

facing a slower pace of convergence toward higher

living standards.

Te baseline forecasts for the global economy are

predicated on a number of assumptions (Figure 1.16),

-2

notably for fuel and nonfuel commodity prices, as well

-4

as the stances of monetary and fiscal policy:

April 2023 WEO

-6

Cyclically adjusted primary balance (percent of GDP)

••

Commodity price assumptions: Prices of fuel com-

-8

modities are projected to fall on average by 36 per-

2021

Advanced economies

Emerging market and

cent and oil prices by about 17 percent, with the

developing economies

decreases reflecting mainly the slowdown in global

economic activity, and natural gas and coal prices

3. Government Debt versus Fiscal Adjustment

(Percentage points, unless otherwise noted)

to decline from their 2022 peaks by 61 percent

JPN

THA

ARG

MYS

and 51 percent, respectively. The forecast for non-

DEU

ESP

CAN

PHL

IND

KOR

TUR

EGY

fuel commodity prices is a decline of 6.3 percent,

BRA

AUS

ZAF

on average, in 2023, with prices for base metals

FRA

IDN

CHN

GBR

expected to decrease by 4.7 percent, the decreases

–1

KAZ

USA

MEX

reflecting concerns regarding real estate investment

RUS

-2

ITA

in China. Food commodity prices, after rising by

POL

-3

NLD

14.8 percent in 2022, are predicted to decline by

-4

6.8 percent in 2023, with prices remaining well

-10

-5

Change in government debt, 2019-22 (percent of GDP)

above their 2021 levels. Compared with forecasts

in the July 2023 WEO Update, an upward revision

Source: IMF staff calculations.

to wheat prices following the suspension of the

Note: In panel 1, solid lines denote assumptions for the October 2023 WEO and

dashed lines for the April 2023 WEO. In panel 2, the cyclically adjusted

Black Sea Grain Initiative (which occurred after

primary balance is the general government balance (excluding interest income

the July 2023 WEO Update forecasting round) is

or expenses) adjusted for the economic cycle. The structural primary fiscal

balance is the cyclically adjusted primary balance corrected for a broader range

broadly offset by downward revisions to other food

of noncyclical factors, such as changes in asset and commodity prices. Data

commodity prices.

labels in the figure use International Organization for Standardization (ISO)

country codes. EA = euro area; WEO = World Economic Outlook.

••

Monetary policy assumptions: Global interest

rate assumptions are on average revised upward

compared with those in the April 2023 WEO,

European Central Bank to raise its to peak at

reflecting actual and signaled policy tightening

3.9 percent in 2023, before all three reduce rates

by major central banks. The Federal Reserve’s

in 2024. The higher policy path over the longer

policy rate is expected to peak at its current level

term has contributed to the rise in long-term

of about 5.4 percent, the Bank of England to

policy rate assumptions. For Japan, policy rates

raise its to peak at about 6.0 percent, and the

for the medium term (2026-28) are revised

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

upward, reflecting changes to the country’s

Figure 1.17. Growth Outlook: Stable and Slow

yield-curve-control framework, and long-term

(Percent; dashes = April 2023; dots = January 2022)

rates are revised upward accordingly. As near-term

inflation expectations decline, real interest rates are

likely to stay elevated even after nominal rates start

to fall. In addition, changes in monetary policy

are becoming less synchronous, with some central

banks that tightened policy earlier (such as the

Central Bank of Brazil) initiating their easing cycle.

••

Fiscal policy assumptions: Governments in advanced

economies are on average expected to ease fiscal

policy in 2023, following a rise in fiscal balances in

World

2022, whereas in emerging market and developing

Advanced economies

Emerging market and developing economies

economies, the projected fiscal stance is on average

neutral. Fiscal consolidation is expected in 2024 in

2022

both groups of economies. Fiscal tightening is on

Source: IMF staff calculations.

average expected to be greater in economies that

Note: Solid lines denote GDP growth from the October 2023 WEO, and dashed

recently experienced a sharper rise in government

lines and dotted lines denote GDP growth forecasts from the April 2023 WEO and

the January 2022 WEO Update, respectively. WEO = World Economic Outlook.

debt (Figure 1.16, panel 3). A rise in government

debt amounting to 10 percentage points of GDP

during 2019-22 is associated on average with

fiscal consolidation (rise in the structural primary

global growth bottomed out in the fourth quarter

balance) of 0.8 percentage point of GDP during

of 2022. However, in some major economies, it is

2022-24. Exceptions to this pattern include, for

not expected to have bottomed out until the second

example, Argentina, where despite a decline, debt

half of 2023.

levels remain high, and the fiscal stance is expected

Advanced economies continue to drive the decline

to continue tightening to secure fiscal and debt

in annual average growth from 2022 to 2023, with

sustainability.

stronger services activity offset by weaker manufactur-

ing, as well as idiosyncratic factors. On average, these

economies are expected to have broadly stable growth

Growth Outlook: Offsetting Divergences

in 2024 with a pickup in 2025. By contrast, emerging

Global growth is projected to fall from 3.5 percent

market and developing economies, on average, are

in 2022 to 3.0 percent in 2023 and 2.9 percent in

projected to see stable growth over 2022-24, with

2024 on an annual average basis (Table 1.1). Tere

a slight pickup in 2025, although with sizable shifts

is a downward revision of 0.1 percentage point for

across regions.

2024 compared with the July 2023 WEO Update

projection. At the same time, there are more sizable

Growth Forecast for Advanced Economies

changes in the underlying growth trajectories of major

economies, with stronger projections for the United

For advanced economies, the growth slowdown

States and downward revisions for China and the euro

projected is significant—from 2.6 percent in 2022 to

area. Te forecasts for growth during 2023-24 are

1.5 percent in 2023 and 1.4 percent in 2024—with

also slower than those before the onset of the shocks

no overall revision from the July 2023 WEO Update,

of 2020-22 (Figure 1.17): the January 2022 WEO

amid stronger-than-expected US momentum and

Update projected global growth at 3.8 percent in 2023

weaker-than-expected growth in the euro area. About

and 3.4 percent in 2024. Te 2023-24 forecasts are

90 percent of advanced economies are projected to

also below the historical (2000-19) annual average of

see lower growth in 2023. With the projected slow-

3.8 percent. Growth is below the historical average

down in advanced economies, annual unemployment

across broad income groups, both in overall GDP as

is projected to rise by an average of 0.1 percentage

well as in per capita GDP. On a year-over-year basis,

point over 2022-24, although with more pronounced

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Table 1.1. Overview of the World Economic Outlook Projections

(Percent change, unless noted otherwise)

Difference from July

Difference from April

Projections

2023 WEO Update¹

2023 WEO¹

2022

2023

2024

2023

2024

2023

2024

World Output

3.5

3.0

2.9

0.0

-0.1

0.2

-0.1

Advanced Economies

2.6

1.5

1.4

0.0

0.2

0.0

United States

2.1

1.5

0.3

0.5

0.4

Euro Area

3.3

0.7

1.2

-0.2

-0.3

-0.1

-0.2

Germany

1.8

-0.5

0.9

-0.2

-0.4

-0.2

France

2.5

1.0

1.3

0.2

0.0

0.3

0.0

Italy²

3.7

0.7

-0.4

-0.2

0.0

-0.1

Spain

5.8

2.5

1.7

0.0

-0.3

1.0

-0.3

Japan

1.0

2.0

1.0

0.6

0.0

0.7

0.0

United Kingdom²

4.1

0.5

0.6

0.1

-0.4

0.8

-0.4

Canada

3.4

1.3

1.6

-0.4

0.2

-0.2

0.1

Other Advanced Economies³

2.6

1.8

2.2

-0.2

-0.1

0.0

Emerging Market and Developing Economies

4.1

4.0

0.0

-0.1

0.1

-0.2

Emerging and Developing Asia

4.5

5.2

4.8

-0.1

-0.2

-0.1

-0.3

China

3.0

5.0

4.2

-0.2

-0.3

-0.2

-0.3

India⁴

7.2

6.3

0.2

0.0

0.4

0.0

Emerging and Developing Europe

0.8

2.4

2.2

0.6

0.0

1.2

-0.3

Russia

-2.1

2.2

1.1

0.7

-0.2

1.5

-0.2

Latin America and the Caribbean

4.1

2.3

0.4

0.1

0.7

0.1

Brazil

2.9

3.1

1.5

1.0

0.3

2.2

0.0

Mexico

3.9

3.2

2.1

0.6

1.4

0.5

Middle East and Central Asia

5.6

2.0

3.4

-0.5

0.2

-0.9

-0.1

Saudi Arabia

8.7

0.8

4.0

-1.1

1.2

-2.3

0.9

Sub-Saharan Africa

4.0

3.3

4.0

-0.2

-0.1

-0.3

-0.2

Nigeria

3.3

2.9

3.1

-0.3

0.1

-0.3

0.1

South Africa

1.9

0.9

1.8

0.6

0.1

0.8

0.0

Memorandum

World Growth Based on Market Exchange Rates

3.0

2.5

2.4

0.0

0.1

0.0

European Union

3.6

0.7

1.5

-0.3

-0.2

0.0

-0.1

ASEAN-5⁵

5.5

4.2

4.5

-0.4

0.0

-0.3

-0.1

Middle East and North Africa

5.6

2.0

3.4

-0.6

0.3

-1.1

0.0

Emerging Market and Middle-Income Economies

4.0

3.9

0.1

0.0

0.1

-0.1

Low-Income Developing Countries

5.2

4.0

5.1

-0.5

-0.1

-0.7

-0.3

World Trade Volume (goods and services)

5.1

0.9

3.5

-1.1

-0.2

-1.5

0.0

Imports

Advanced Economies

6.7

0.1

3.0

-1.8

-0.1

-1.7

0.3

Emerging Market and Developing Economies

3.2

1.7

4.4

-0.2

-0.5

-1.6

-0.7

Exports

Advanced Economies

5.3

1.8

3.1

-1.0

-0.1

-1.2

0.0

Emerging Market and Developing Economies

4.1

-0.1

4.2

-1.3

0.1

-1.7

-0.1

Commodity Prices (US dollars)

Oil⁶

39.2

-16.5

-0.7

4.2

5.5

7.6

5.1

Nonfuel (average based on world commodity import

weights)

7.9

-6.3

-2.7

-1.5

-1.3

-3.5

-1.7

World Consumer Prices⁷

8.7

6.9

5.8

0.1

0.6

-0.1

0.9

Advanced Economies⁸

7.3

4.6

3.0

-0.1

0.2

-0.1

0.4

Emerging Market and Developing Economies⁷

9.8

8.5

7.8

0.2

1.0

-0.1

1.3

Source: IMF staff estimates.

Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during July 25, 2023-August 22, 2023. Economies are listed on

the basis of economic size. The aggregated quarterly data are seasonally adjusted. WEO = World Economic Outlook.

¹Difference based on rounded figures for the current, July 2023 WEO Update, and April 2023 WEO forecasts.

²See the country-specific notes for Italy and the United Kingdom in the “Country Notes” section of the Statistical Appendix.

³Excludes the Group of Seven (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries.

⁴For India, data and forecasts are presented on a fiscal year basis, and GDP from 2011 onward is based on GDP at market prices with fiscal year 2011/12 as

a base year.

⁵Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Table 1.1. Overview of the World Economic Outlook Projections (continued)

(Percent change, unless noted otherwise)

Q4 over Q4⁹

Difference from July

Difference from April

Projections

2023 WEO Update¹

2023 WEO¹

2022

2023

2024

2023

2024

2023

2024

World Output

2.2

2.9

3.2

0.0

0.3

0.0

0.1

Advanced Economies

1.2

1.5

0.1

0.4

-0.1

United States

0.9

1.9

1.4

0.5

0.3

0.9

0.1

Euro Area

1.7

0.7

1.4

-0.5

-0.1

0.0

-0.4

Germany

0.8

-0.2

1.7

-0.7

0.2

-0.4

-0.1

France

0.7

1.0

1.5

0.1

-0.1

0.2

0.1

Italy²

1.5

0.3

1.2

-0.6

0.1

-0.1

0.1

Spain

3.8

1.6

2.0

-0.2

0.3

-0.1

Japan

0.5

2.1

1.0

0.6

0.0

0.8

0.0

United Kingdom²

0.6

0.8

0.1

-0.5

1.0

-1.2

Canada

2.1

1.2

2.1

-0.4

0.3

-0.2

0.3

Other Advanced Economies³

0.9

2.0

2.2

0.2

0.1

0.4

Emerging Market and Developing Economies

3.2

4.0

4.7

-0.1

0.6

-0.5

0.3

Emerging and Developing Asia

4.2

5.0

5.5

-0.3

0.6

-0.8

0.2

China

3.2

4.9

4.7

-0.9

0.6

-0.9

0.0

India⁴

6.1

5.5

7.7

1.2

1.3

-0.7

1.3

Emerging and Developing Europe

-1.2

2.8

2.5

0.1

0.5

0.4

0.0

Russia

-3.1

2.2

1.2

0.3

0.4

1.3

-0.2

Latin America and the Caribbean

2.8

1.5

3.2

0.7

0.3

1.1

Brazil

2.5

2.1

2.8

0.8

0.6

1.2

0.8

Mexico

4.3

2.6

1.9

0.7

0.2

1.4

0.0

Middle East and Central Asia

Saudi Arabia

5.5

0.9

4.0

-1.1

1.1

-2.2

0.8

Sub-Saharan Africa

Nigeria

3.2

2.6

3.6

0.0

-0.4

-0.1

South Africa

1.3

1.6

2.0

0.7

0.0

0.5

0.3

Memorandum

World Growth Based on Market Exchange Rates

1.8

2.5

2.6

0.0

0.2

0.1

0.0

European Union

1.8

1.0

1.6

-0.5

-0.1

0.0

-0.3

ASEAN-5⁵

4.7

4.2

4.6

-0.4

-0.2

-0.1

-0.7

Middle East and North Africa

Emerging Market and Middle-Income Economies

3.1

4.0

4.6

-0.1

0.5

-0.5

0.3

Low-Income Developing Countries

Commodity Prices (US dollars)

Oil⁶

8.8

-2.5

-5.7

10.5

-0.8

14.8

-2.3

Nonfuel (average based on world commodity import

weights)

-0.4

-3.1

0.7

-3.1

-0.1

-6.6

1.2

World Consumer Prices⁷

9.2

5.9

4.8

0.4

0.9

0.3

1.1

Advanced Economies⁸

7.7

3.3

2.6

0.0

0.1

0.4

Emerging Market and Developing Economies⁷

10.5

8.1

6.6

0.7

1.5

0.5

1.6

⁶Simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil. The average price of oil in US dollars a barrel was $96.36 in

2022; the assumed price, based on futures markets, is $80.49 in 2023 and $79.92 in 2024.

⁷Excludes Venezuela. See the country-specific note for Venezuela in the “Country Notes” section of the Statistical Appendix.

⁸The inflation rates for 2023 and 2024, respectively, are as follows: 5.6 percent and 3.3 percent for the euro area, 3.2 percent and 2.9 percent for Japan, and

4.1 percent and 2.8 percent for the United States.

⁹For world output, the quarterly estimates and projections account for approximately 90 percent of annual world output at purchasing-power-parity weights.

For emerging market and developing economies, the quarterly estimates and projections account for approximately 85 percent of annual emerging market and

developing economies’ output at purchasing-power-parity weights.

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Table 1.2. Overview of the World Economic Outlook Projections at Market Exchange Rate Weights

(Percent change)

Difference from July

Difference from April

Projections

2023 WEO Update¹

2023 WEO¹

2022

2023

2024

2023

2024

2023

2024

World Output

3.0

2.5

2.4

0.0

0.1

0.0

Advanced Economies

2.6

1.5

1.4

0.0

0.1

0.3

0.1

Emerging Market and Developing Economies

3.7

4.0

3.8

0.0

-0.1

0.0

-0.2

Emerging and Developing Asia

3.9

5.1

4.6

-0.1

-0.2

-0.1

-0.2

Emerging and Developing Europe

0.4

2.2

2.1

0.6

-0.1

1.2

-0.2

Latin America and the Caribbean

3.9

2.2

0.4

0.2

0.7

0.1

Middle East and Central Asia

5.8

1.9

3.4

-0.5

0.2

-1.1

-0.1

Sub-Saharan Africa

3.9

3.2

3.9

-0.1

0.0

-0.2

-0.1

Memorandum

European Union

3.4

0.6

1.3

-0.3

-0.1

-0.2

Middle East and North Africa

6.0

1.8

3.4

-0.6

0.3

-1.3

0.1

Emerging Market and Middle-Income Economies

3.6

4.0

3.7

0.0

-0.2

0.1

-0.2

Low-Income Developing Countries

5.1

4.0

5.1

-0.5

-0.1

-0.7

-0.3

Source: IMF staff estimates.

Note: The aggregate growth rates are calculated as a weighted average, in which a moving average of nominal GDP in US dollars for the preceding three years

is used as the weight. WEO = World Economic Outlook.

¹Difference based on rounded figures for the current, July 2023 WEO Update, and April 2023 WEO forecasts.

increases in Canada (1.0 percentage point), the

rising to 1.2 percent in 2024. The forecast is revised

United Kingdom (0.9 percentage point), and the

downward by 0.2 percentage point and 0.3 per-

United States (0.2 percentage point). Neverthe-

centage point for 2023 and 2024, respectively,

less, the forecast for unemployment in 2024 is on

compared with July 2023 WEO Update projections.

average 0.4 percentage point lower than that in the

There is also a divergence in growth across major

April 2023 WEO, reflecting still-tight labor markets

euro area economies in 2023. For Germany, where

in a number of cases.

a slight economic contraction is now projected in

••

In the United States, growth is projected at 2.1 per-

the second half of 2023, amid weakness in inter-

cent in 2023 and 1.5 percent in 2024. The forecast

est-rate-sensitive sectors and slower trading-partner

is revised upward by 0.3 percentage point for 2023

demand, there is a downward revision of 0.2 per-

and by 0.5 percentage point for 2024, compared

centage point to growth of -0.5 percent. For France,

with July 2023 WEO Update projections, owing to

where there was catch-up in industrial production

stronger business investment in the second quarter

and external demand outperformed in the first half

and resilient consumption growth, a reflection of

of 2023, there is an upward 0.2 percentage point

a still-tight labor market. In addition, as already

revision to growth of 1.0 percent.

mentioned, the general government fiscal stance

••

Among other major advanced economies, there

is expected to be expansionary in 2023. However,

is also some divergence in growth. Growth in

with wage growth slowing, savings accumulated

the United Kingdom is projected to decline from

during the pandemic running out, and the Federal

4.1 percent in 2022 to 0.5 percent in 2023, with

Reserve maintaining tight monetary policy, growth

a 0.1 percentage point upward revision. The

is expected to slow in the second half of 2023 and

decline in growth reflects tighter monetary policies

in 2024. The unemployment rate is forecast to rise

to curb still-high inflation and lingering impacts

from 3.6 percent in the second quarter of 2023 to a

of the terms-of-trade shock from high energy

peak of 4.0 percent by the last quarter of 2024--a

prices. In Japan, growth is projected to rise from

lower peak than previously projected (5.2 percent in

1.0 percent in 2022 to 2.0 percent in 2023, with

the April 2023 WEO and 5.6 percent at the time of

a 0.6 percentage point upward revision, buoyed by

the October 2022 WEO), consistent with a softer

pent-up demand, a surge in inbound tourism, and

landing than earlier expected for the US economy.

accommodative policies, as well as by a rebound

••

Growth in the euro area is projected to fall from

in auto exports that had earlier been held back by

3.3 percent in 2022 to 0.7 percent in 2023, before

supply chain issues.

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Growth Forecast for Emerging Market and

0.4 percentage point and 0.1 percentage point upward

Developing Economies

revisions for 2023 and 2024, respectively, since July.

The decline for 2023 reflects a normalization of

For emerging market and developing economies,

growth along with the effect of tighter policies, a

growth is projected to decline relatively modestly, from

weaker external environment, and lower commodity

4.1 percent in 2022 to 4.0 percent in both 2023 and

prices. The upward revision to 2023 since July reflects

2024, with a downward revision of 0.1 percentage

stronger-than-expected growth in Brazil, revised

point for 2024 compared with the July 2023 WEO

upward by 1.0 percentage point to 3.1 percent, driven

Update projection. However, this average path hides

by buoyant agriculture and resilient services in the

regional divergences, with growth in two of the five

first half of 2023. Consumption has also remained

main geographic regions rising in 2023 and then

strong, supported by fiscal stimulus. The upward revi-

falling in 2024.

sion for the region also reflects stronger-than-expected

••

Growth in emerging and developing Asia is projected

growth in Mexico, revised upward by 0.6 percentage

to rise from 4.5 percent in 2022 to 5.2 percent in

point to 3.2 percent, with the delayed postpandemic

2023, then to decline to 4.8 percent in 2024, with

recovery taking hold in construction and services and

downward revisions of 0.1 percentage point and

spillovers from resilient US demand.

0.2 percentage point for 2023 and 2024, respectively,

••

Growth in the Middle East and Central Asia is

compared with July projections. The revision reflects

projected to decline from 5.6 percent in 2022 to

a lower forecast for China, which is revised downward

2.0 percent in 2023, before picking up to 3.4 per-

by 0.2 percentage point for 2023 and by 0.3 percent-

cent in 2024, with a 0.5 percentage point downward

age point for 2024 to growth of 5.0 percent in 2023

revision for 2023 and a 0.2 percentage point upward

and 4.2 percent in 2024. With the property market

revision for 2024. The change for 2023 is attribut-

crisis in that country, lower investment is the main

contributor to the revision. Growth in India is pro-

able mainly to a steeper-than-expected growth slow-

jected to remain strong, at 6.3 percent in both 2023

down in Saudi Arabia, from 8.7 percent in 2022 to

and 2024, with an upward revision of 0.2 percentage

0.8 percent in 2023, with a negative revision to the

point for 2023, reflecting stronger-than-expected

latter of 1.1 percentage point. The downgrade for

consumption during April-June.

growth in Saudi Arabia in 2023 reflects announced

••

Growth in emerging and developing Europe is

production cuts, including unilateral cuts and

projected to rise to 2.4 percent in 2023, with an

those in line with an agreement through OPEC+.

upward revision of 0.6 percentage point since

Private investment, including that from “gigaproj-

July, before declining to 2.2 percent in 2024. The

ect” implementation, continues to support non-oil

forecast for Russia is for a rise from -2.1 percent

GDP growth, which remains strong and unchanged

in 2022 to 2.2 percent in 2023, with an upward

from previous projections. The downgrade for 2023

revision of 0.7 percentage point for 2023. The

also reflects cuts to the growth forecast for Sudan

rise in growth reflects a substantial fiscal stimulus,

to about -18.3 percent (a downward revision of

strong investment, and resilient consumption in

nearly 20 percentage points) reflecting the outbreak

the context of a tight labor market. The upward

of conflict, deteriorating domestic security, and the

revision for the region for 2023 also reflects an

worsening humanitarian situation. The upgrade

increase of 5.0 percentage points to the forecast

for 2024 reflects the unwinding of some of the

for Ukraine to growth of 2.0 percent; the increase

announced production cuts.

is due to stronger-than-expected domestic demand

••

In sub-Saharan Africa, growth is projected to decline

growth, with firms and households adapting to the

to 3.3 percent in 2023 before picking up to 4.0

war in that country amid sharply declining inflation

percent in 2024, with 0.2 percentage point and

and stable foreign exchange markets. It additionally

0.1 percentage point downward revisions for 2023

reflects a 1.0 percentage point upside revision to

and 2024, respectively, and with growth remaining

growth of 4.0 percent in Türkiye, on the back of

below the historical average of 4.8 percent. The

stronger-than-expected domestic demand.

projected decline reflects, in a number of cases,

••

Latin America and the Caribbean is expected to

worsening weather shocks, the global slowdown,

see growth decline from 4.1 percent in 2022 to

and domestic supply issues, including, notably, in

2.3 percent in both 2023 and 2024, although with

the electricity sector. Growth in Nigeria is projected

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

to decline from 3.3 percent in 2022 to 2.9 percent

Figure 1.18. Inflation Outlook: Falling

in 2023 and 3.1 percent in 2024, with negative

(Percent; dashes = April 2023)

effects of high inflation on consumption taking

World

hold. The forecast for 2023 is revised downward

Advanced economies

by 0.3 percentage point, reflecting weaker oil and

Emerging market and developing economies

gas production than expected, partially as a result

1. Headline Inflation

of maintenance work. In South Africa, growth is

expected to decline from 1.9 percent in 2022 to

0.9 percent in 2023, with the decline reflecting

power shortages, although with a 0.6 percentage

point upward revision thanks to the intensity of

power shortages in the second quarter of 2023 being

lower than expected.

2022

Inflation Outlook: Gradual Decline to Target

Global headline inflation is expected to steadily

2. Core Inflation

decline from its peak of 8.7 percent in 2022

(annual average) to 6.9 percent in 2023 and

5.8 percent in 2024 (Table 1.1). Te forecast for

2024 is revised upward by 0.6 percentage point,

reflecting higher-than-expected core inflation. On a

year-over-year basis, projected global headline inflation

peaked at 9.5 percent in the third quarter of 2022 and

is projected to reach 5.9 percent by the fourth quarter

2022

of 2023 before falling to 4.8 percent in the fourth

quarter of 2024, still above the prepandemic (2017-19)

Source: IMF staff calculations.

annual average of about 3.5 percent. Although mone-

Note: Solid lines denote inflation rates from the October 2023 WEO, and dashed

lines denote inflation rates from the April 2023 WEO. Core inflation excludes

tary tightening is starting to bear fruit, a central driver

volatile food and energy prices. WEO = World Economic Outlook.

of the fall in headline inflation projected for 2023 is

declining international commodity prices.

Nearly three-quarters of economies are expected

sharp fall in (year-over-year) inflation in 2023--of

to see lower headline inflation in 2023, but the pace

6.6 percentage points--from 9.9 percent in the fourth

of disinflation is especially pronounced for advanced

quarter of 2022 to 3.3 percent in the fourth quarter

economies (Figure 1.18). Tese economies are expected

of 2023, with the fall reflecting in part the decrease

to see (annual average) inflation fall by 2.7 percent-

in energy prices. In the United States, where inflation

age points in 2023, about double the (1.3 percentage

peaked earlier, the forecast is for a fall of 3.9 percent-

point) decline projected for emerging market and devel-

age points, from 7.1 percent in the fourth quarter of

oping economies. Part of this difference reflects advanced

2022 to 3.2 percent in the fourth quarter of 2023.

economies’ benefiting from stronger monetary policy

In China, where inflation declined to near zero in the

frameworks and communications, which facilitate

second quarter of 2023, a gradual rise--to still-low

disinflation (Chapter 2), but the difference also reflects

levels--is projected for the second half of 2023 as the

lower exposure to shocks to commodity prices and

drag from lower commodity prices wanes.

exchange rates. In low-income developing countries,

Core inflation is generally projected to decline more

inflation is on average projected to be in double digits

gradually than headline. Globally, it is set to decline

and is not expected to fall until 2024.

modestly, from 6.4 percent in 2022 (annual average)

Tere are also large differences in the expected pace

to 6.3 percent in 2023 and 5.3 percent in 2024. It is

of change in headline inflation across major economies,

proving more persistent than projected, with upward

as Figure 1.19 reports, reflecting different starting

revisions of 0.3 percentage point and 0.6 percent-

points. Te euro area is expected to see an especially

age point for 2023 and 2024, respectively, compared

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.19. Headline Inflation Forecasts for Selected

Figure 1.20. Inflation Mostly above Target until 2025

Economies

(Percentage points; distribution of deviation from inflation target)

(Percent, year over year)

Oct. 2023 WEO

July 2023 WEO Update

Apr. 2023 WEO

1. United States

2. Euro Area

Thailand

Vietnam

-2

China

-4

2021:

22:

23:

24:

21:

22:

23:

24:

2023

Sources: Central bank websites; Haver Analytics; and IMF staff calculations.

3. United Kingdom

4. Japan

Note: The figure shows the distribution (box-whisker plot) by each year. The

diamonds in the middle of the boxes are the medians and the upper (lower) limits

of the boxes are the third (first) quartile. The whiskers show the maximum and

minimum within the boundary of 1.5 times the interquartile range from upper and

lower quartiles, respectively.

over half of economies are expected to see no decline in

core inflation in 2023. On a fourth-quarter-over-fourth-

quarter basis, however, about 86 percent of economies

-2

2021:

22:

23:

24:

21:

22:

23:

24:

(for which quarterly data are available) are projected to

see a decline. Overall, returning inflation to target is

5. Brazil

6. China

expected to take until at least 2025 in most cases. Com-

parison of official inflation targets with the latest forecasts

for 72 inflation-targeting economies (34 advanced

economies and 38 major emerging market and devel-

oping economies) suggests that annual average inflation

will exceed targets (or the midpoints of target ranges) in

93 percent of these economies in 2023 (Figure 1.20).

-1

Countries where inflation in 2023 is expected to average

below target include China, Tailand, and Vietnam. In

-2

2021:

22:

23:

24:

21:

22:

23:

24:

China, this projection reflects subdued core inflation in

the context of substantial economic slack, with rising

Source: IMF staff calculations.

youth unemployment and pass-through from lower

Note: Gray lines sketch past WEO forecasts from January 2021 until January 2023

energy costs. In Tailand, this prospective outcome

WEO Update. WEO = World Economic Outlook.

reflects strong pass-through from lower energy prices to

core inflation as well as lower house price inflation. In

with the July 2023 WEO Update projections. Te

Vietnam, it reflects a slowdown in economic activity and

drivers of the upside revisions differ by economy but

pass-through from lower energy prices. In 2024, inflation

reflect, in several cases, still tight labor markets and

is still expected to exceed targets (or the midpoints of tar-

stickier-than-expected services inflation, as well as, in

get ranges) in 89 percent of economies, with an expected

some cases, including Türkiye, which accounts for the

median deviation of about 1 percentage point. By 2025,

bulk of the global upside revision for 2024, the effects of

inflation is expected to be within only 0.2 percentage

past currency depreciations and the related pass-through

point of target (or the midpoints of target ranges) in

into underlying inflation. On an annual average basis,

most economies.

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

A Mediocre Medium Term

Figure 1.21. Forecasts of Global GDP

(Trillions of US dollars in 2023 prices)

Forecasts for the growth rate of global GDP over the

medium term are at their lowest in decades. As Box 1.1

130

explains, five-year-ahead forecasts for this rate from both

125

the WEO and Consensus Economics—which summa-

rizes the medium-term projections of leading forecasters

120

for more than 100 economies—have declined over the

115

past few decades. Te latest WEO forecast for global

110

growth in 2028 is 3.1 percent, as compared with a

medium-term growth projection of 3.6 percent just

105

before the onset of the pandemic (at the time of the

October 2023 WEO

100

January 2020 WEO Update) and 4.9 percent just before

January 2022 WEO Update

January 2020 WEO Update

the onset of the global financial crisis (at the time of the

April 2008 WEO). More than 80 percent of economies

2019

have seen a slowdown in their growth prospects from

15 years ago, at the time of the April 2008 WEO.

Source: IMF staff calculations.

Tree-quarters of this reduction in global growth comes

Note: For the January 2020 and January 2022 WEO Updates, calculations

assume that growth rate projections for 2025 and 2027 represent, respectively,

from weaker prospects for per capita GDP growth

the longer-term growth rate projections (for years beyond 2025 and 2027,

rather than merely slower population growth. A decom-

respectively). WEO = World Economic Outlook.

position of the drivers of weaker per capita growth pros-

pects points to slower prospective capital accumulation

per worker and slower total factor productivity growth

imply a global output loss of some 5.0 percent, with

as the largest contributors. Te slowdown in labor force

respect to prepandemic projections, or $6.4 trillion at

participation in advanced economies also contributed

2023 prices.

about a third of the overall decline in projected per

capita GDP growth, in the context of changing demo-

Trade Growth Historically Low

graphic trends because of population aging.

Prospects for income convergence across economies

World trade growth is expected to decline from

have also dimmed. At the time of the April 2008

5.1 percent in 2022 to 0.9 percent in 2023, before

WEO, poorer countries in terms of per capita income

rising to 3.5 percent in 2024, well below the 2000-19

were expected to grow significantly faster than richer

average of 4.9 percent. Te projected decline in 2023

ones. But this growth differential has declined over the

reflects not only the path of global demand, but also

subsequent 15 years. As a result, the expected number

shifts in its composition toward domestic services;

of years needed for poorer countries to close half the

lagged effects of dollar appreciation, which slows trade

gap in income per capita with richer countries has

owing to the widespread invoicing of products in

increased significantly since 15 years ago. Dimming

dollars; and rising trade barriers. In 2022, countries

global growth prospects imply fewer resources available

imposed almost 3,000 new restrictions on trade, up

to navigate a shock-prone world and attract needed

from fewer than 1,000 in 2019.

investments.

Meanwhile, global current account balances--the

Overall, based on current policies, a full recovery

sums of absolute surpluses and deficits--are expected

of global output to its prepandemic path is unlikely.

to narrow in 2023, following their significant increase

Figure 1.21 reports the latest medium-term forecast for

in 2022 (Figure 1.22). As reported in the IMF’s 2023

global GDP in trillions of dollars at 2023 prices. Even

External Sector Report, the rise in current account

before Russia’s invasion of Ukraine and the inflation

balances in 2022 reflected largely commodity price

surge of 2022, there was little prospect of returning

increases triggered by the war in Ukraine, which

to the prepandemic path (as reflected in the January

caused a widening in oil and other commodity trade

2020 forecasts), with expectations of longer-term

balances. Over the medium term, global balances are

scarring, particularly for emerging market and develop-

expected to narrow gradually as commodity prices

ing economies. Recovery to the prepandemic trend is

decline. Creditor and debtor stock positions reached

now even more elusive. Te latest projections for 2028

historically elevated levels in 2022, with the increases

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.22. Current Account and International Investment

Figure 1.23. Recession and Inflation Concerns over Time

Positions

(Index, 100 = highest point worldwide during 2008-23)

(Percent of global GDP)

100

Recession

Inflation

European creditors

European debtors

China

United States

Japan

Others

Oil exporters

Discrepancy

1. Global Current Account Balance

-1

Jan.

Jan. Sep.

-2

2017

-3

2005

27 28

Source: Google Trends.

Note: Figure reports Google search interest in the topics recession and inflation

2. Global International Investment Position

relative to the highest point (100) during 2008-23 worldwide.

year, the resolution of US debt ceiling tensions and

swift action by Swiss and US authorities to contain

banking sector turbulence reduced the immediate

-10

risks of broader financial stress. Nevertheless, concerns

regarding global inflation and recession remain high

-20

(Figure 1.23), reflecting the still-challenging envi-

-30

2005

27 28

ronment, and the balance of risks to global growth

remains tilted to the downside.

Source: IMF staff calculations.

Te most prominent risks and uncertainties

Note: European creditors are Austria, Belgium, Denmark, Finland, Germany,

Luxembourg, The Netherlands, Norway, Sweden, and Switzerland; European

surrounding the outlook are now discussed; a

debtors are Cyprus, Greece, Ireland, Italy, Portugal, Slovenia, and Spain; oil

model-based analysis that quantifies risks to the global

exporters are Algeria, Azerbaijan, Iran, Kazakhstan, Kuwait, Nigeria, Oman, Qatar,

outlook and plausible scenarios follows in Box 1.2.

the Russian Federation, Saudi Arabia, the United Arab Emirates, and Venezuela.

Upside Risks

reflecting mainly widening current account balances.

Tey are expected to moderate slightly over the

More favorable outcomes for global growth than

medium term as current account balances gradually

in the baseline forecast, which would strengthen the

narrow. In some economies, gross external liabilities

likelihood of a soft landing, are increasingly plausible:

remain large from a historical perspective and pose

••

Underlying inflation falls faster than expected. Factors

risks of external stress.

that could contribute to such an outcome include

stronger-than-expected pass-through from lower

energy prices or a compression of profit margins to

Risks to the Outlook: Tilted to the Downside

absorb cost increases. Declining job vacancies could

but More Balanced

also play a stronger-than-expected role in easing

Adverse risks have receded since the April 2023

labor markets, implying a downward shift in the

WEO, implying a more balanced distribution of risks

ratio of vacancies to unemployment and reducing

around the outlook for global growth. Economic

the need for further monetary tightening to curb

activity has proved more resilient than expected, and

inflation. As Box 1.2 explains, such developments

inflation is on a downward path, surprising on the

would support economic growth by restoring

downside in a number of cases. In addition, earlier this

purchasing power for households and allowing

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

central banks to bring forward an easing in their

and contagion through nonbank financial interme-

policy stances.

diaries (see Chapter 1 of the October 2023 Global

••

Domestic demand recovers faster. In numerous econo-

Financial Stability Report). Should concerns about

mies, the stock of excess savings accumulated during

financial stability in China fester, the impact could

the pandemic has not yet been drained and con-

be felt in other emerging market economies through

sumption remains below prepandemic trends, raising

exchange rate volatility and destabilizing capital

the possibility of a faster-than-expected consumption

flows. Box 1.2 provides a quantification of the prin-

recovery. The US labor market could again prove

cipal risks stemming from a deeper-than-expected

tighter than expected, supporting a more resilient

contraction in the real estate sector in the absence of

consumption path. Stronger policy support in China

swift action to restructure property developers and

than currently envisaged--through means-tested

unintended fiscal tightening in response to lower tax

transfers to households in particular--could bolster

revenues for local governments.

the recovery and generate positive global spillovers.

••

Commodity prices become more volatile amid cli-

Furthermore, as Box 1.2 explains, private investment

mate and geopolitical shocks. Intense heat waves and

could recover more strongly to prepandemic levels

droughts in the midst of record global temperatures

than currently expected in response to current policy

this year have provided a taste of a more inhospitable

initiatives. Recent breakthroughs in artificial intelli-

future blighted by global climate change. More fre-

gence and progress in green technologies could also

quent crop failures across countries are likely, causing

usher in a new period of strong productivity growth,

food price spikes and food insecurity. The ongoing

boosting investment and growth.

El Niño phenomenon, which in the past typically

has raised global food prices by more than 6 percent

in a year (European Central Bank calculations as

Downside Risks

cited in Schnabel 2023), poses further risks. The

Despite the recent favorable growth surprises,

war in Ukraine and geopolitical tensions elsewhere

numerous adverse risks to global growth

could intensify, triggering supply chain disruptions

remain plausible:

and renewed fluctuations in food, fuel, fertilizer, and

••

China’s economic growth slows further. Recent

other commodity prices. The suspension in July of

developments shift the distribution of China’s

the Black Sea Grain Initiative and recent attacks on

growth forecast risks to the downside, with negative

Ukraine’s grain facilities are concerns in this regard.

implications for trading partners. The extent of

In this context, a proliferation of export restrictions

the slowdown will depend largely on the Chinese

on agricultural products aimed at reducing domes-

government’s policy response. To be effective, that

tic prices complicates the delivery of commodities

response will have to preserve financial stability by

to global markets, with the potential to exacerbate

expediting the restructuring of struggling property

fluctuations in commodity prices. A rise in oil prices

developers, facilitating the completion of housing

driven by a reduction in oil supply could reduce

projects, and addressing the growing strain in local

global economic activity and raise inflation, with the

government finances, all of which would help restore

magnitude of the effects differing across regions.⁴

business and consumer confidence. Policy space has

Moreover, as Chapter 3 explains, intensifying geo-

shrunk but is not fully exhausted. Given the lack of

economic fragmentation could constrain the flow of

inflationary pressure, the People’s Bank of China has

commodities across regions, causing additional price

some room to ease. At the same time, fiscal expendi-

volatility. Commodities are particularly vulnerable to

tures can be reoriented toward spending, with higher

trade restrictions, as their production is highly con-

fiscal multipliers, keeping the overall fiscal stance

centrated as a result of natural endowments. Finally,

broadly neutral. For instance, targeted support to

shortages of energy resulting from lower investment

households can be provided while shifting away

in fossil fuel development that are not matched by

from increasingly ineffective and expensive invest-

ment in infrastructure. In the most fiscally fragile

⁴As reported in Box 1.3 of the October 2022 WEO, a 30 percent

rise in oil prices relative to baseline could reduce the level of global

provinces, financial stress in the real estate sector

GDP by about 0.5 percent and raise global inflation by about 1.3

could end up spilling over to the rest of the financial

percentage points, relative to baseline. Te analysis assumes mone-

sector via the sovereign-banking-corporate nexus

tary policy responds endogenously to movements in inflation.

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

corresponding increases in alternative clean energy

Figure 1.24. Sovereign Spreads in Emerging Market and

supplies may cause more frequent energy crises. Such

Developing Economies

(Basis points, distribution by economy group)

adverse supply shocks may affect countries asymmet-

rically, with particularly acute effects on lower-income

2,500

August 2021

August 2022

August 2023

countries, where food and energy constitute a large

share of household consumption. Serious effects are

2,000

especially likely in sub-Saharan Africa, where food

averages about 40 percent of consumption.

1,500

••

Underlying inflation persists. Tight labor markets and

wage demands to compensate for past cost-of-living

increases could contribute to persistent underlying

1,000

inflationary pressures. In countries where companies’

profit margins have grown in the past two years,

500

there may be room to accommodate a rebound in

real wages without triggering further price increases.

With economic activity slowing, market pressures

EMDE

LAC

ME&CA

SSA

Asia

Europe

could contain the pass-through from labor costs to

prices. However, as Chapter 2 explains, near-term

Sources: Bloomberg Finance L.P.; and IMF staff calculations.

Note: For each region, box denotes upper quartile, median, and lower quartile for

inflation expectations remain elevated and above

members, and whiskers show maximum and minimum values within boundary of

target inflation rates, which may contribute to more

1.5 times interquartile range from upper and lower quartiles. Y-axis is cut off at

persistent wage and price pressures. This would com-

2,500 basis points. EMDE = emerging market and developing economy;

LAC = Latin America and the Caribbean; ME&CA = Middle East and Central Asia;

plicate the task of monetary policy in restoring price

SSA = sub-Saharan Africa.

stability. The ample stock of excess household savings

in some economies could, where the surpluses are

still sizable, slow the effects of monetary policy tight-

the euro area, and some emerging market economies

ening on inflation. Greater-than-expected pressures

(see Chapter 1 of the October 2023 Global Finan-

on underlying inflation could then force central

cial Stability Report). Moreover, borrowing costs for

banks to—again—raise rates by more than expected.

emerging market and developing economies remain

••

Financial markets reprice. Financial markets have

high, constraining priority spending and raising the

adjusted upward their expectations in regard to mon-

risk of debt distress. The share of emerging market

etary policy tightening in recent months, but new

and developing economies with sovereign credit

upside inflation surprises would force a monetary

spreads above 1,000 basis points was 24 percent as of

policy reassessment and could trigger a sudden rise in

August: still much higher than two years ago (only

interest rate expectations and falling asset prices—as

9.3 percent). For sub-Saharan Africa, spreads still

happened in March. Movements such as these could

exceed 680 basis points in more than half of cases

further tighten financial conditions and stress banks

(Figure 1.24). The share of low-income countries

and nonbank financial institutions whose balance

(56 percent) and emerging markets (25 percent)

sheets remain vulnerable to interest rate risk, espe-

in or at high risk of debt distress this year remains

cially those highly exposed to commercial real estate.

elevated, as it was last year.

Contagion effects are possible. A flight to safety

••

Geoeconomic fragmentation intensifies, hampering

(Box 1.2), with an attendant appreciation of reserve

multilateral cooperation. The ongoing separation of

currencies, would trigger negative ripple effects for

the world economy into blocs amid Russia’s war

global trade and growth and raise inflation in emerg-

in Ukraine and other geopolitical tensions could

ing market and developing economies, especially

intensify—with more restrictions on trade (in

those highly dependent on imports of food and fuel.

particular, trade in strategic goods, such as critical

••

Debt distress increases. Global financial conditions,

minerals); cross-border movements of capital, tech-

which measure the cost of funding in capital markets,

nology, and workers; and international payments.

have generally eased since the March 2023 banking

Should this happen, the costs for global prosperity

stress episode, but lending standards have tightened

will be high. Over the long term, trade fragmenta-

and loan demand has declined in the United States,

tion alone—that is, the splintering of countries into

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Figure 1.25. Social Unrest Stable at Low Level

Te estimated probability that global growth in 2023

(Percent of economies experiencing major social unrest)

will fall below 2.0 percent—an outcome that has

occurred only five times since 1970--is now about

All

APAC

5 percent, down from an estimated 25 percent at the

EUR

ME&CA

SSA

time of the April 2023 WEO. For 2024, the probability

of such an outcome is about 15 percent, also down from

about 25 percent at the time of the April 2023 WEO.

A contraction in global per capita real GDP—which

often happens when there is a global recession—in 2024

has an estimated probability below 10 percent. At the

same time, the probability of global growth’s exceeding

3.8 percent (the historical average during 2000-19) is

also less than 20 percent for 2024, highlighting the rela-

tively slow outlook for global growth. Turning to prices,

2018

July

the probability that core inflation in 2024 will be higher

than in 2023, instead of declining to 5.3 percent from

Source: IMF staff calculations.

6.3 percent in 2023, is assessed at about 15 percent.

Note: The figure shows the fraction of countries within a world region experiencing

major events of social unrest (including protests, riots, and major demonstrations)

in the preceding 12 months. All = All economies; APAC = Asia-Pacific;

Policy Priorities: From Disinflation to

EUR = Europe; ME&CA = Middle East and Central Asia; SSA = sub-Saharan Africa;

WH = Western Hemisphere.

Sustained Growth

With inflation declining, policymakers are approach-

ing the final stage of the inflation cycle that started

blocs that trade exclusively with one another—could

in 2021. But despite the progress, persistent policy

reduce annual global GDP by up to 7 percent (Aiyar

challenges remain. Underlying inflation is still too high

and others 2023). Intensification of geoeconomic

in most countries and could easily persist, and bud-

fragmentation would also hamper multilateral

getary space for needed investments is constrained in

cooperation in providing crucial public goods, such

many cases, particularly in lower- and middle-income

as fighting climate change and future pandemics and

countries saddled with unsustainable debts. Putting a

ensuring energy and food security.

priority on supply-enhancing reforms that front-load

••

Social unrest resumes. Reports of social unrest—

gains and foster buy-in would narrow the large output

including protests, riots, and major demonstrations—

losses projected under current policies, especially for

have declined internationally since reaching elevated

emerging market and developing economies. Mit-

levels in late 2019 (Figure 1.25, which updates

igating the negative effects of climate change and

the index of Barrett and others 2022). However, a

geoeconomic fragmentation and protecting the most

resumption of social turmoil, potentially as a result of

vulnerable will require swift and internationally coordi-

future food and fuel price spikes, could hurt eco-

nated policy actions.

nomic activity, particularly in countries with more

limited scope to cushion the impact through policies

Policies with Near-Term Impact

(Hadzi-Vaskov, Pienknagura, and Ricci 2021).

Social unrest could also complicate the passage and

Durably restoring price stability: With global core

implementation of necessary reforms, including those

inflation still high and declining slowly, central banks

relating to the energy transition.

should generally maintain a tight stance and avoid

prematurely easing monetary policy. At the same time,

there are fewer cases in which sizable interest rate hikes

Globally Consistent Risk Assessment of the World

are warranted, with increasing differentiation across

Economic Outlook Forecast

countries’ policy needs for ensuring price stability.

Te risk of a hard landing has clearly receded since

••

Returning inflation to target: In economies in which

April, as the quantitative analysis in Box 1.2, based on

inflation is still elevated and persistent, a restrictive

the IMF’s Group of Twenty (G20) Model, illustrates.

stance—with real rates above neutral—is needed until

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

clear signs emerge that underlying inflation is durably

Figure 1.26. General Government Interest Payments

cooling. This is critical to safeguarding the success of

(Percent of general government revenues)

many central banks in keeping longer-term inflation

expectations anchored. As Chapter 2 explains, strong

AEs

EMMIEs

LIDCs

monetary policy frameworks and effective commu-

nication are vital for minimizing the output costs

of disinflation. Once underlying inflation is clearly

cooling, with inflation and inflation expectations

approaching the target, moving rates gradually to a

more neutral policy stance may be warranted, while

signaling continued commitment to price stability.

For countries with inflation already below target,

easing policies may be necessary to reduce the risks of

inflation expectations de-anchoring.

••

Navigating uncertainty along the disinflation path:

2008

The task for central banks is complicated by the

Source: IMF staff calculations.

difficulty of estimating with confidence levels of

Note: AEs = advanced economies; EMMIEs = emerging market and middle-

neutral rates of interest and of unemployment, as

income economies; LIDCs = low-income developing countries.

well as by lags in policy transmission (see Box 1.2

of the April 2023 WEO), uncertainties associated

with forecasting inflation in this environment, and

tain signs of market strain (Adrian, Gopinath, and

the differing potency of the transmission mecha-

Gourinchas 2023).

nism across economic sectors. Calibrating monetary

policy will require weighing the costs of lowering

Strengthening financial supervision and addressing

nominal rates prematurely versus those of delay-

stress: Te fast pace of monetary policy tightening

ing too much.

continues to put the financial sector under pressure.

••

Coordinating monetary and fiscal policies: Although

Strengthened supervision (through implementation

the primary responsibility for restoring price stabil-

of Basel III and removal of forbearance measures) and

ity lies with central banks, legislated government

the monitoring of risks to anticipate further episodes

spending cuts or tax increases aimed at ensuring

of banking sector stress are warranted. Te intensity of

public debt sustainability can, by reducing aggregate

supervision should be commensurate with banks’ risks

demand and reinforcing the overall credibility of

and systemic importance, and it is essential to rapidly

disinflation strategies, further ease inflation. This

close oversight gaps in the nonbank financial sector.

is especially the case in countries with overheated

Macroprudential policy measures could be employed

economies and steep inflation-unemployment

preemptively to tackle emerging risks in banks and

trade-offs. By the same token, in economies with

nonbank financial institutions. Where market strains

inflation below target, fiscal expansion or a tilting of

emerge, deploying tools that provide liquidity support

government spending toward items more supportive

promptly and forcefully, while mitigating the risk of

of demand, such as targeted household transfers,

moral hazard, would limit contagion. In China, where

may be necessary, subject to available budgetary

continued financial stress in the property sector pres-

room for maneuver.

ents a downside risk to global growth, stronger action

••

Monitoring financing conditions: Financing condi-

by the central government is needed to avert macrofi-

tions in capital markets have eased in the United

nancial feedback loops. Tis action should include fur-

States and the euro area (Adrian, Natalucci, and

ther efforts to facilitate the exit of insolvent developers

Wu 2023), which may complicate the task of

while protecting home buyers’ interests, which would

fighting inflation. Careful monitoring of serious

also help restore home buyer confidence. Countries at

misalignment in financing conditions is warranted

risk of external shocks can make full use of the global

given the potential repercussions from a sudden

financial safety net afforded by international financial

repricing of risk. Central banks should be ready to

institutions, including IMF precautionary financial

deploy necessary financial stability tools to con-

arrangements.

International Monetary Fund | October 2023

WORLD ECONOMIC OUTLOOK: Navigating Global Divergences

Normalizing fiscal policy: With fiscal deficits

Strengthened multilateral cooperation on food security

and government debt above prepandemic levels

is needed, with strengthened rules-based frameworks for

and debt-service costs as a share of GDP rising

restrictions on food exports (see Chapter 3).

(Figure 1.26), tightening the fiscal stance is warranted

Enhancing labor supply: Reforms that reduce labor

in numerous cases to restore room for budgetary

market tightness—by encouraging participation and

maneuver. In low-income and developing countries,

reducing job search and job matching frictions—would

interest payments constitute nearly one-eighth of

facilitate fiscal consolidation and contribute gradually

general government revenues. For countries with lim-

to easing inflation. Such reforms include short-term

ited fiscal space, shifting the composition of spending

training programs for professions experiencing short-

toward items that provide targeted support to house-

ages and labor laws and regulations that increase work

holds can support activity. Careful communication of

flexibility through telework and leave policies. Policies

medium-term fiscal policy plans is needed to support

that encourage more women and older people to join

credibility and avert disruptive market responses. Where

the workforce, reduce labor market duality, and improve

countries are in or at high risk of debt distress, achiev-

mobility would further enhance labor supply. Active

ing debt sustainability may require not only well-timed

immigration policies in advanced economies can address

fiscal consolidation, but also debt restructuring (see

labor shortages as well as longer-term headwinds to

Chapter 3 of the April 2023 WEO). Domestic revenue

growth, including those from population aging.

mobilization, more efficient spending, and improved

institutional fiscal frameworks are increasingly pertinent

Policies with Medium-Term Payoffs

for emerging market and developing economies given

high debt levels and sizable spending needs.

Intensifying macrostructural reforms: Targeted and

Supporting the vulnerable: Te composition of fiscal

carefully sequenced structural reforms can equip policy-

adjustment should protect the most vulnerable, by

makers with additional levers to reinforce productivity

means of targeted support to households, among other

growth despite constrained policy space. Tis is all the

methods, especially in the context of large swings in

more important given the decline in medium-term

energy and food prices. Phasing out untargeted fiscal

growth prospects (Box 1.1). Making a priority of and

measures, especially those that blunt price signals—

bundling reforms that alleviate the most critical binding

such as energy subsidies—is warranted as energy prices

constraints to economic activity—such as governance,

return to prepandemic levels.

business regulation, and external sector reforms—can

Avoiding debt distress: Large short-term external

help front-load the resulting output gains, which helps

financing needs are stretching the ability of numerous

ensure public buy-in. IMF staff analysis for emerg-

emerging market economies and low-income coun-

ing market and developing economies (Budina and

tries to service their debt. Sovereign spreads remain

others 2023) suggests that output gains from reforms

elevated, impeding access to credit for many economies

can be substantial, even in the short term. In cases

reliant on short-term borrowing. Faster and more

with large initial gaps in structural indicators relative

efficient coordination on debt resolution, through the

to the best performance, a bundled and sequenced

G20 Common Framework and the Global Sovereign

reform package is estimated to lift the level of output

Debt Roundtable, among other options, would help

by 4 percent in two years and 8 percent in four years.

mitigate the risk of debt distress spreading. Te recent

Gains of this magnitude would significantly narrow the

agreement between Zambia and its official creditor

aforementioned output losses from the pandemic for

committee is a welcome step in that direction.

these economies. More broadly, reforms ranging from

Improving food security: Extreme weather conditions—

enhancing human capital by expanding health care

heat waves, floods, and wildfires—are exacerbating risks

coverage and increasing access to early childhood and

to the global supply of staple crops, including risks from

higher education, to reducing barriers to competition

the war in Ukraine, and threaten food security for mil-

and supporting start-ups, to deepening digitalization

lions of people. In this context, trade restrictions aimed

would, depending on the economy in which they were

at reducing domestic prices could worsen global food

enacted, enhance productivity. By accelerating growth,

insecurity and create shortages for the world’s poorest

such reforms can also help assuage concerns about

people. Bans on food exports should be lifted as soon

potential short-term growth costs of ambitious green

as feasible to safeguard the global flow of food supplies.

reforms, including those that operate through energy

International Monetary Fund | October 2023

CHAPTER 1 Global Prospects and Policies

Figure 1.27. Firms Less Green in Emerging Market

mechanisms can encourage trading partners to decar-

Economies

bonize and can ensure an equal footing for domestic

(Density)

producers and those in countries with less ambitious

carbon-emissions-reduction targets, but they must be

0.5

Advanced economies

designed carefully to support consistency with WTO

Emerging market and

developing economies

rules. Green industrial policies—currently pursued in

0.4

China, the United States, and the European Union—

complement carbon pricing to speed the transition.

0.3

However, they also should be designed in a manner

that avoids distortions to international trade (such

0.2

as domestic-content provisions) and investment, also

in line with WTO rules. In parallel, investments in

0.1

climate adaptation activities and infrastructure are

needed, especially for the regions most vulnerable to

climate shocks. Enhancing climate-risk-monitoring

0.0

-10

-5

systems and risk management frameworks and stronger

Log of emissions-to-revenues ratio

safety nets and insurance are also needed to enhance

Source: IMF staff calculations.

climate resilience (October 2023 Fiscal Monitor).

Note: The figure plots the kernel density of the log of the emissions-to-revenues

Establishing a “green corridor” and increasing data

ratio separately for firms headquartered in advanced economies and in emerging

sharing: A green corridor agreement is necessary to

market and developing economies, after controlling for industry fixed effects

(4-digit SIC). Data for 2019 are used, and finance, utilities, and energy sectors are

safeguard the international flow of critical miner-

excluded. The calculations are based on Capelle and others (forthcoming).

als needed for the green transition. It should tran-

SIC = Standard Industrial Classification.

scend geopolitical boundaries and be guided by the

principles of common climate goals rather than

prices (see Chapter 2 of the October 2022 WEO), and

beggar-thy-neighbor policies. Similar agreements could

create the necessary fiscal space for implementation. In

stabilize essential agricultural commodity markets by

general, mitigating the potential adverse distributional

dampening supply volatility in the wake of adverse

effects of reforms across economic groups (including

shocks. Prudent risk management also calls for

those relating to gender and age) requires complemen-

investing in diversified supply sources to minimize the

tary policies, including targeted support and regulations

potential fallout in case of further fragmentation in

to ensure that the reform benefits are shared. Industrial

commodity markets. A lack of data on critical minerals

policies could be pursued where externalities or market

for the green transition raises uncertainty for producers

failures are well established and other policies are not

and consumers and leads to price volatility. An inter-

available but should avoid protectionist provisions and

national platform or organization could improve data

be consistent with international agreements and World

sharing and standardization (see Chapter 3).

Trade Organization (WTO) rules.

Strengthening multilateral cooperation and mitigating

Speeding the green transition and mitigating the

the effects of fragmentation: Multilateral cooperation is

effects of climate change: Reductions in global emis-

vital for achieving progress in dealing with the inter-

sions are needed to mitigate climate change. Envi-

locking challenges holding back global recovery. Joint

ronmental performance varies widely across firms

action is needed on many fronts, and further geo-

within industries (Figure 1.27). Laggards—firms with

economic fragmentation would trigger costly delays.

high emissions per unit of output relative to indus-

Restoring trust in multilateral frameworks is urgently

try peers—operate older physical capital and are less

needed to revive a rules-based platform of international

knowledge-intensive and productive (Capelle and

cooperation, to foster shared global prosperity, and to

others, forthcoming). Significant emissions cuts could

regulate potentially disruptive emerging technologies

be achieved by helping these firms approach current

such as artificial intelligence. At the center of such

technological frontiers. Carbon pricing and subsidies

reforms, enhancing trade policy certainty should be a

for green investments would support the adoption of

priority. Necessary first steps should include restoring

frontier technologies, helping make production both

binding dispute settlement in the WTO and clarifying

greener and more efficient. Carbon border-adjustment

the application of key WTO rules to climate measures.

International Monetary Fund | October 2023

INTERNATIONAL MONETARY FUND. Navigating Global Divergences (October 2023) - page 1