Global Economic Outlook

Context: In its January update of the World Economic Outlook (WEO) report, the IMF has marginally improved the forecast for global growth in 2023.

About World Economic Outlook (WEO)

• It is a bi-annual publication by the International Monetary Fund (IMF) that provides analysis and forecasts of the global economic situation and prospects.
• The report typically includes a global outlook, as well as regional and country-specific analyses, and provides insights into key economic and financial trends, risks, and policy challenges facing the world economy.
• The IMF releases the WEO twice every year, in April and October, apart from updating it twice — in January and July.

Key takeaways from the WEO’s January 2023 update

• Global growth: According to the IMF’s October 2022 WEO, the global growth rate will decelerate from 3.4% in 2022 to 2.7% in 2023, resulting in a recession for many people in 2023.
  • However, in the January update, the IMF effectively rules out a global recession.
  • Global growth is now projected to fall to 2.9% in 2023 before rising to 3.1% in 2024.
• Significant revisions: China, Russia, the US, Germany, and Italy are some of the key economies that have seen the most significant upward revisions in their 2023 GDP forecasts.
  • The United Kingdom saw a substantial (almost 1 percentage point) downgrade in its 2023 GDP.
• Global inflation: Global inflation is set to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, stated the IMF. Price rise is slowing for two main reasons:
  • One, monetary tightening all across the world — higher interest rates drag down overall demand for goods and services, which in turn slows down inflation.
  • Two, in the wake of a faltering demand, prices of different commodities — both fuel and non-fuel — have come down from their recent highs.
  • In 2023, advanced economies are expected to have an inflation of 4.6% while emerging economies will continue to face an inflation of 8.1%.
• Indian Scenario: There’s been no change in India’s growth outlook since October 2022.
  • India will stay the world’s fastest growing major economy in 2023 and 2024.
  • Growth in India is set to decline from 6.8% in 2022 to 6.1% in 2023 before picking up to 6.8% in 2024, with resilient domestic demand despite external headwinds, states the IMF

What is Recession?

• A recession is a period of economic decline characterized by a decrease in GDP, employment, and trade lasting typically two consecutive quarters or more.
• Recessions can have a significant impact on individuals and businesses, and can lead to a decline in consumer spending, lower investment, and reduced economic growth.

The International Monetary Fund (IMF)

• About: IMF is a specialized agency of the United Nations to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
• Headquarters: Washington D.C.
• Establishment: The IMF was established through the Bretton Woods Conference 1944 in the aftermath of the Great Depression of the 1930s.
• Membership:
  • Currently, the IMF has 190 member countries.
  • India was among the 44 founding member countries of IMF.
  • Any other state, whether or not a member of the UN, may become a member of the IMF in accordance with IMF Articles of Agreement and terms prescribed by the Board of Governors.
  • Membership in the IMF is a prerequisite to membership in the IBRD.
• Pay a quota subscription:
  • On joining the IMF, each member country contributes a certain sum of money, called a quota subscription, which is based on the country’s wealth and economic performance.
  • Quotas are denominated (expressed) in SDRs (Special Drawing Rights).
  • Members’ voting power is related directly to their quotas.
• Special Drawing Rights (SDRs):
  • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
  • SDR is the IMF’s unit of account and not a currency.
  • The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a SDR basket of currencies.
  • SDR basket of currencies includes the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
  • The SDR basket is reviewed every five years.
  • SDRs represent a claim to currency held by IMF member countries for which they may be exchanged.
• Important publications:
  • The World Economic Outlook
  • The Global Financial Stability Report

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