Emerging market slowdown bottoms out in 2022, but risks remain – IMF

NEW YORK (Reuters) – The International Monetary Fund on Monday raised its estimates for output growth in emerging markets for this year, as projections now show that the region’s economic slowdown may have bottomed out in 2022, on the back of China’s reopening. Resilient India and Russia’s Unexpected Growth.

In its latest update of the World Economic Outlook, the International Monetary Fund sees growth in emerging market and developing economies at 4.0% in 2023, 0.3 percentage points higher than the October forecast, and 0.1 percentage points higher than the 3.9% estimate for 2022. In the year 2024, expansion is projected at 4.2%.

Inflation is seen as a final drag on growth, although it will continue to slow this year and next. It is noted that emerging and developing economies registered price increases of 9.9% in 2022, then slowed to 8.1% in 2023 and 5.5% in 2024, still above the average of 4.9% in 2017-2019.

It is estimated that about 15% of low-income countries are already in debt distress and another 45% are at high risk of getting there, and the 1 in 4 emerging market economies are also at high risk.

Driving growth in 2023, India continues to see growth of more than 6% this year and next, while China’s upward revision of 0.8 percentage point puts it on track for growth above 5% this year.

“If we look at both China and India together, they account for about 50% of global growth in 2023… so it’s a very important contribution,” said Pierre-Olivier Gournchas, chief economist and director of research at the IMF.

On the other hand, Russia saw a 2.6 percentage point increase in its growth forecast for 2023, which translates to an increase of 0.3% this year. It is by far the most positive review among the largest economies.

The Russian revisions are mostly due to last year’s “fairly high” export earnings, as well as strong financial incentives from Moscow, partly in military spending. However, in the medium term, there is still a significant reduction in production forecasts for Russia linked to the invasion of Ukraine.

“If you look at (2027) as the mid-range and compare that level to where it was before the war, that gap is about 9% of GDP, so it’s still quite big,” said Petya Cueva-Brooks, deputy director. Research Division of the International Monetary Fund.

Growth in the economies of the Middle East and Central Asia is expected to slow this year to 3.2%, 0.4 percentage point lower than the October estimate, due in part to the effects of the war in Europe.

The regional revision mainly reflects “cuts in both Egypt and Saudi Arabia, in part because of the impact of the war in Ukraine and its impact on commodity prices,” Gorynchas said. He added that for Saudi Arabia, the decline in crude oil production as part of the OPEC Plus agreement also affected.

“The situation is very difficult for oil importers in the region, many of whom are heavily indebted, and therefore food prices and energy prices, which are still high, are a huge burden,” Koeva Brooks said. “The cost-of-living crisis is still alive and well in that region, so there is also the risk of social unrest.”

Brazil and Mexico, Latin America’s largest economies, were both revised up in their economic growth for 2023 by 0.2 and 0.5 percentage points, respectively. For Latin America and the Caribbean, the overall growth estimate increase was only 0.1 percentage point, to 1.8%.

Despite projections of faster growth in the coming years for emerging markets, individually, about half of these economies have lower growth projections in 2023 than their 2022 estimates, according to the International Monetary Fund.

The estimates come on the back of an uptick in global growth forecasts for 2023 helped by “surprisingly resilient” demand in the United States and Europe, easing energy costs and the reopening of the Chinese economy after Beijing abandoned its tough coronavirus restrictions. . Read more

Among the downside risks to the outlook, the IMF said, was a stalling of China’s economic recovery, and a further escalation of the war in Ukraine which could also exacerbate inflation.

(Covering) By Rodrigo Campos in New York (Additional reporting) By David Lauder in Washington Editing by Matthew Lewis

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