The International Monetary Fund (IMF) has revised its economic forecast for Germany and the UK, indicating a deeper recession for both countries in 2023.
On Tuesday, the IMF indicated that high inflation, a manufacturing downturn, and slower trading-partner demand would lead to a contraction of 0.5% in Germany's economy, Europe's largest. This is a steeper decline than the previously anticipated 0.3%. Uniquely among G7 nations, Germany is the only country not expected to register growth in its 2023 outlook. The vulnerabilities in interest-rate-sensitive sectors have been largely attributed to this situation. Although a recovery is projected, it is expected to be weaker with a lowered growth rate of just 0.9%, down from the initial forecast of 1.3%.
The same day, the IMF predicted the UK to be the weakest advanced economy in 2024 with a growth rate of just 0.6%. This low growth rate has been attributed to tight monetary policies and persistent inflation of 3.7%, worsened by a terms-of-trade shock from high energy costs due to Russia's invasion of Ukraine. The full effect of an interest rate hike to a post-financial crisis high of 5.25% could potentially push the UK into recession.
Additionally, the IMF forecasts that the unemployment rate in the UK will rise to 4.6%, still below the long-run average. Despite this, the UK's 2023 growth forecast has been slightly upgraded from 0.4% to 0.5%.
Contrastingly, growth rates for other major economies such as the US, Eurozone, Japan, and Canada are forecasted at healthier rates of 1.4%, 1.2%, 1.0% and 1.6% respectively.
In terms of global economic growth, the IMF predicts a slowdown from 3.5% in 2022 to 3% in 2023, further dropping to 2.9% in 2024. This represents a downgrade of global economic growth by 0.1 percentage point from July's forecast.
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