IMF forecasts on Germany and China: a dark outlook

The Monetary Fund (IMF) left global economic growth forecasts for 2023 unchanged despite signs of weakness shown by several major economies, according to its data released on Tuesday, October 10. This is especially true for China and Germany.

The institute still expects global growth of 3% by 2023, and slightly lower in 2024 at 2.9%, down slightly (-0.1 percentage point) from the previous estimate in July.

"We have a global economy that continues to recover from the pandemic and war in Ukraine, and yet growth remains weak by historical standards. We are also seeing increasing divergence," the Fund's chief economist, Pierre-Olivier Gourenchas, said at an online press conference.

Of the advanced economies, Germany shows the most worrying signs, with recession becoming increasingly likely for this year (-0.5%) and a weaker recovery next year (0.9%), while the IMF in July expected a better outcome.

After lagging last year among G7 countries, and compared to other major European economies, the continent's first economy will be the only one in recession this year, confirming its status as Europe's "sick man". "Two main factors are combining here: the energy shock caused by the war in Ukraine, in a country very dependent on Russian energy, and the compression of monetary policy," Olivier Gourenchas explained in an interview with AFP.

Other European economies are doing better: forecasts for France have slightly improved for this year (1% expected, 0.2 points better than forecast in July), while Spain remains resilient (2.5% by 2023).

The Italian economy is slowing but remains positive for this year (+0.7%) and, outside the EU, the UK, which faces low growth (+0.5%).

The situation is quite different on the other side of the Atlantic.

The slowdown in China (+5% this year, +4.2% in 2024, forecasts slightly downgraded) is confirmed among major emerging economies, while the country suffers from a real estate crisis. "If nothing is done, this could further impact China's economic activity," warned the IMF's chief economist, noting in particular "risks to the banking sector if real estate developers are left without liquidity. "

Other major emerging economies show a more positive trend, with an improved outlook for 2023 for both India (6.3%, +0.2 points) and Latin America, where Brazil (3.1%, +1.0 points) is benefiting from good commodity markets, while Mexico (3.2%) is one of the main gainers from the reorganization of supply chains between China and the United States.

When it comes to Russia, forecasts for next year made a year ago suggested a severe recession, but they continue to improve and it is expected to end the year with growth of 2.2%, mainly due to strong growth in government spending related to the war in Ukraine and widening budget deficit.