October 10, 2023
Speakers:
- Pierre‑Olivier Gourinchas, Director, Research Department, IMF
- Petya Koeva Brooks, Deputy Director, Research Department, IMF
- Daniel Leigh, Division Chief, Research Department, IMF
Moderator:
Jose Luis De Haro, Communications Officer, IMF Jose Luis de Haro
Mr. DE HARO: OK. I think we have a quorum, and we can start.
Assalamu alaikum. [Saba al hayr]. Bonjour. Good morning. And welcome, everyone, to this World Economic Outlook press briefing.
I want to start by thanking the authorities, and especially the people of Morocco, for hosting us this week.
I’m Jose Luis de Haro with the Communications Department here at the IMF. And as you know, we are here to introduce the latest edition of the World Economic Outlook. As you know, this new edition will include new numbers and projections for the global economy and our country members. Also, we will take a look to the risks to our baseline and some policy recommendations.
I would like to‑‑
I hope that all of you have had access to a copy of the report. If not, there are two ways you can access it. One is visiting IMF.org. There, you will find the report; but not only that, also Pierre‑Olivier’s blog and other assets, like the data, underlying charts, and videos. And then my colleagues in the publishing department, they also printed out some brochures, with QR codes, that are all over the press room. And if you scan that QR code, you will be able to directly download the World Economic Outlook and all the other flagships that will be introduced during the week.
We are here, accompanied by Pierre‑Olivier Gourinchas. He is the economic counsellor and the director of the Research Department. Next to him are Petya Koeva Brooks, she is the deputy director of the Research Department, and Daniel Leigh, he is a division chief also at the Research Department.
Pierre‑Olivier is going to start with some opening remarks, and then we will proceed to take your questions. We will be taking questions also from reporters that are joining us online. And I want remind everyone that we will have simultaneous interpretation.
Without any further delay, Pierre‑Olivier, the floor is yours.
Mr. GOURINCHAS: Thank you, Jose. And welcome, everyone.
Just weeks after a terrible earthquake that took a high toll in terms of human lives, Morocco is generously hosting our meetings. Allow me to express my sincere condolences and my gratitude to the Moroccan people.
The global economy continues to recover from the pandemic and Russia’s invasion of Ukraine, showing remarkable resilience; yet growth remains slow and uneven. The global economy is limping along, not sprinting. Under our baseline forecast, growth will slow from 3.5 percent last year to 3 percent this year and 2.9 percent next year, a 0.1 percentage point downgrade for 2024. This remains well below historical averages.
Important divergences are appearing. The slowdown is more pronounced in advanced economies than in emerging markets and developing economies. Among advanced economies, the U.S. has been revised up, with resilient consumption and investment, while the euro area has been revised down, as tighter monetary policy and the energy crisis took a toll. There is divergence also among emerging markets and developing economies, with China facing growing headwinds, while Brazil, India and Russia are revised up.
The news on inflation is encouraging, but we’re not quite there yet. Headline inflation continues to decelerate. Core inflation, excluding food and energy prices, is also projected to decline but more gradually. However, all in all, most countries are not expected to return to inflation target until 2025. Taken together, our projections are increasingly consistent with a soft-landing scenario, bringing inflation down, without a major downturn in activity. This is especially true in the U.S., where the unemployment rate is now expected to increase only mildly between now and 2025.
Labor markets in advanced economies, while still tight, are softening, without signs of a wage‑price spiral. Further, many countries are experiencing a sharp and welcome compression in the distribution of earnings, with wages growing faster at the bottom of the distribution. This could have to do with so‑called amenity value of flexible and remote work schedules reducing wage pressures for high earners.
While some of the extreme risks have moderated since April, the balance remains tilted to the downside.
First, the real estate crisis is deepening in China. Restoring confidence requires prompt action to restructure property developers, preserve financial stability, and address strained local public finances. The policy challenge is complex; but if well executed, it will enable China’s economy to pivot away from a real estate credit‑driven model of growth.
Second, commodity prices could become more volatile, with increasing climate and geopolitical shocks. This would represent a serious risk to the disinflation strategy. Between June and September, oil prices have increased by about 27 percent, on the back of extended supply cuts from OPEC Plus countries, before falling back more recently by about 8 percent. Food prices remain elevated and could be disrupted further by an escalation of the war in Ukraine. Geoeconomic fragmentation has also led to a sharp increase in the dispersion in commodity prices across regions, including critical minerals. This could cause serious macroeconomic risks going forward, including to the climate transition.
Third, inflation remains uncomfortably high. Near‑term inflation expectations have risen markedly above target. Bringing these expectations back down is critical to winning the battle against inflation.
Fourth, fiscal buffers have eroded in many countries, with elevated debt levels, rising funding costs, slowing growth, and an increasing mismatch between the growing demands on the state and available fiscal resources. This leaves many countries more vulnerable to crisis.
Finally, despite the tightening of monetary policy, financial conditions have eased in many countries. The danger here is that of a sharp repricing of risk, especially for emerging markets, that would appreciate further the US dollar, trigger capital outflows, and increase borrowing costs and debt distress.
With still tight labor markets, ample excess savings in some countries, adverse oil price movements, and inflation expectations not fully normalized, central banks have more work to do to bring inflation back to target for a sustained period. They must avoid a premature easing.
On the fiscal front, we must renew our focus on managing fiscal risks. Buffers need to be rebuilt, including by phasing out energy subsidies, while still protecting the vulnerable. Fiscal and monetary policy pulled in the same direction last year, which helped the disinflation process; but this alignment has weakened. Most worrying is the case of the United States, where fiscal deficits have deteriorated substantially in 2023. Fiscal policy in the U.S. should not be procyclical, even less so at this stage of the inflation cycle.
We should also return our focus to the medium term. Here, the picture is becoming darker. Medium‑term growth prospects have weakened since the global financial crisis, especially for emerging markets and developing economies. The implications for these countries are profound. A much slower convergence toward the living standards of advanced economies, reduced fiscal space, increased debt vulnerabilities and exposure to shocks, and diminished opportunities to overcome the scarring from the pandemic and the war. With lower growth, higher interest rates, and reduced fiscal space, structural reforms of the right kind at the right time become key.
Higher long‑term growth can be achieved through a careful sequence of reforms, especially those focused on governance, business regulations, and the external sector. These first‑generation reforms help unlock growth and make subsequent reforms, whether the credit markets or labor markets or for the green transition, much more effective.
The weaker growth prospects also reflect the rising incidence of climate risk, with increased frequency of large natural disasters and rising geoeconomic fragmentation, such as the trade tensions leading to U.S.‑China decoupling. While some countries may benefit in the short term, in the medium term, all lose.
Multilateral cooperation can help reverse some of these headwinds for the world economy.
First, countries should avoid implementing policies that contravene the World Trade Organization’s role and distort international trade.
Second, countries should safeguard the flow of critical minerals, as well as that of agricultural commodities. Such green corridors would help reduce volatility, food insecurity, and accelerate the green transition.
All countries should aim to limit geoeconomic fragmentation that prevents joint progress toward a shared global prosperity. A robust global financial safety net, with a well‑resourced IMF at its center, is essential.
Lastly, we are now back on the African continent for the first time in 50 years. I encourage you to join Abebe Selassie and Jihad Azour, the directors of our African and Middle East and Central Asia Departments, at 6:30 p.m. today for the release of a special issue note on growth and resilience for the African continent.
Thank you. Shukran.
Mr. DE HARO: Thank you, Pierre‑Olivier.
Before we start, some ground rules. Please, if you want to ask a question, raise your hand, and wait until I call you. When I do, please identify yourself and the outlet that you represent. Try to be concise. As you can see, we have a full house here. We are also going to be taking question from WebEx and our Press Center.
And I just want to remind that Pierre‑Olivier, Petya, and Daniel are here to talk about the global outlook, the projections for the countries, and the policy recommendations and risks. If you have specific questions about institutional issues and also about country programs, those can be tackled in the multiple press briefings from our regional director heads that are going to happen during the week and also from the press briefing from our Managing Director.
So how I am going to do this, I am going to start from this side of the room. Then I will come to the middle. And then I will go to the right side. We are going to start here. The gentleman with the check‑‑
We are not hear you. Please, can you‑‑
QUESTION: I am from (inaudible) from Bulgarian News Agency. Thank you for your presentation.
I would like to ask you about the future locomotive of European growth, what you think it will be.
Mr. GOURINCHAS: Yes. I think I understood the question to be about the future engines of European growth.
So let me start, first, by mentioning that we have‑‑in terms of our projections for the euro area, we have, this year, a pretty sharp slowdown, to 0.7 percent growth rate. That is a downward revision. This is one of the regions I mentioned has been revised down in our projections, by about 0.2 percentage points. And we are expecting a rebound in 2024, but it’s a modest rebound. We are expecting a rebound to 1.2 percent growth in 2024.
Now, when we look a little bit under the hood and we think about which economies are going to be growing strongly, what we are seeing is we are seeing some continued weakness in‑‑for instance Germany. Germany is expected to grow at only about 0.9 percent next year, while some other countries are growing a little bit more robustly. I think, for instance, Spain is expected to grow at 1.7 percent next year; while, you know, a country like France is expected to grow at 1.3 percent. So, we get a little bit of heterogeneity in terms of growth engines for the European economies.
I would say that, in general, what we are seeing, the forces at play here, is that we have relatively weak momentum in manufacturing. So, more manufacturing‑oriented economies are suffering on the back of high energy prices; but we are also seeing a weakening of services. And so the services‑oriented economies that had been doing relatively well in Europe are also seeing some slowdown going into 2024. So, we are probably going to have a little bit of a soft patch, if you want, for European growth in the next year, before it starts picking up after that.
Mr. DE HARO: OK. We are going to continue on this side. I am going to go with the lady in the third row.
QUESTION: Thank you. Good morning. My name is Nume Ekeghe from THISDAY Newspapers Nigeria.
My question is on sub‑Saharan Africa. Could you give us the growth prospects for sub‑Saharan Africa, especially with Nigeria and ‑‑ more specifically, on Nigeria. Also, the report speaks about the importance of job creation for SSA. Can you speak on how ‑‑ or give advice on how Nigeria and SSA can enhance job creation?
And also, there has been the thing about energy subsidy. You mentioned it again in your reports. And Nigeria recently phased out energy subsidies, brought it back in. What can you advise on how would be a sustainable and permanent way to phase out energy subsidies? And also, if you can speak on the currency situation we have in Nigeria. Thank you.
Mr. GOURINCHAS: Thank you. So, on sub‑Saharan Africa, we have slight downward revision for the region as a whole. I mean, we are expecting growth at about 3.3 percent this year, and that’s a 0.2 percentage point downward revision. There is a slight downward revision also for next year, to about 4 percent.
On the details and the regional sort of characteristics, let me turn it over to my colleague Daniel here.
Mr. LEIGH: Thank you. So, for sub‑Saharan Africa, we have growth bottoming out in 2023, then coming back up in 2024. Inflation is peaking but is still in double digits for more than 40 percent of the economies. We see African growth at 3.3, 4 percent. That’s above the global average, but it’s below the potential that Africa has and that it needs to catch up more quickly toward higher‑income levels.
The shocks hitting growth are diverse, but there are several external ones coming from the higher food and fertilizer prices still from the war in Ukraine; the funding squeeze‑‑harder to get capital; and the still very high spreads, therefore, for several economies; and exchange rate pressures.
For Nigeria, in particular, we have a growth forecast that goes from 3.3 percent this year [2022] to 2.9 percent next year [2023], before going up to 3.1 percent in 2024. There is a downward revision for this year. Partly, this is because of the demonetization, the high inflation, the shocks to agriculture and hydrocarbon output. That is coming on top of those external headwinds.
I would also add that President Tinubu has moved quickly with important reforms, including ending the fuel subsidies and unifying the official exchange rate. We welcome these initial bold reforms because we see them as paving the way toward stronger and inclusive growth.
Mr. DE HARO: OK. We are going to continue. We are going to go behind the lady who just spoke, to Larry Elliott, The Guardian.
QUESTION: Good morning. Larry Elliott of The Guardian. Two questions, if I may.
The first is about the war between Israel and Hamas. How serious a risk do you think that is to the global economy, obviously, what happened after the WEO went to bed.
The second one is about the U.K. Over the last year, you’ve revised up your forecast for the U.K., after being very gloomy. Is there a chance that you could have to do the same again, particularly if interest rates don’t go to the 6 percent you are forecasting in the WEO? Thank you.
Mr. GOURINCHAS: Thank you, Larry.
First, on the conflict in Israel and Gaza. Well, we obviously are very saddened by the loss of life that we’re witnessing. And we are monitoring very carefully the situation in terms of the economic impact it could have on the region and beyond.
I think we have to be cautious. I think it’s too early to really assess what the impact might be. And as you pointed out, of course, this happened after our round of current projections was closed. But we will have to wait a little bit before seeing what the impact might be. Of course, we all hope for a rapid de‑escalation of the conflict and an end to the violence.
In terms of your question on the U.K. So for the U.K., we have a fairly sharp slowdown in 2023, compared to 2022, with growth coming down from 4.1 percent last year to 0.5 percent this year. That number is actually revised up a little bit, compared to our July projections. And then continuing into 2024, growth remains fairly weak, at 0.6 percent. So certainly, relatively low growth performance that is projected.
While inflation remains at fairly elevated levels, it has been coming down. And actually, we’ve revised it down for the U.K.; but for 2023, we’re still expecting about 7.7 percent headline inflation. That has been revised down slightly.
So going forward‑‑
And let me also just address the point on the projections there. The assumptions that we used for our round of projections did include‑‑when they were made in August‑‑did include an expectation that the Bank of England would peak at about 6 percent. But our U.K. team, in finalizing their projections, used a number that incorporated some of the more recent developments and was closer to 5.5 percent. So that doesn’t quite come up as high as the 6 percent we have there.
The general perspective here on the U.K. is, you know, we have fairly subdued growth. We have falling momentum. We have a labor market that is cooling. But inflation remains quite persistent. And that is going to require monetary policy to remain tight for a little while longer, into next year. I’ll stop here.
Mr. DE HARO: OK. We are going to start moving to the center of the room. I am going to start here in the first row, the gentleman with the tie.
QUESTION: Good morning. Thank you for your presentation. I am Zulfick Farzan from Sri Lanka, representing News First. My question is based on Sri Lanka, but I would appreciate it if you would also give a global perspective as well on the region.
Several countries are currently undergoing a debt restructuring process. And in the IMF World Economic Outlook, you had mentioned that the projections for countries, including Sri Lanka, have been excluded because of debt negotiation processes going on. How long do you think that this process will take place for countries like Sri Lanka to achieve a certain degree of growth in the future, while also meeting the credit expectations? Thank you.
Mr. GOURINCHAS: Thank you. Daniel, would you like to provide some views on Sri Lanka?
Mr. LEIGH: Thank you. So, on Sri Lanka, the people of Sri Lanka have shown remarkable resilience. In the face of enormous challenges, Sri Lanka has made commendable progress in implementing difficult but much‑needed reforms. And these reforms are already bearing fruit, as the economy is showing tentative signs of stabilization. Inflation is down from a peak of about 70 percent a year ago, in September 2022, down to below 2 percent in September 2023. Gross international reserves have increased. And shortages of essentials have eased.
Now, despite early signs of the stabilization, a full recovery is not yet assured. Growth momentum remains subdued, with real GDP in the second quarter contracting by 3.1 percent on a year‑on‑year basis and high‑frequency economic indicators continuing to provide mixed signals. So sustained reforms ‑‑ continuing with these reforms is going to be critical to put the economy on a path toward a lasting recovery and stable and inclusive growth.
Mr. DE HARO: OK. Before we continue in the room, we are going to take a question from WebEx from [EK news]. So, if you can hear me, please unmute yourself and formulate your question.
QUESTION: Hi. Just a little more on the Middle East situation, if it were to intensify in the MENA region but, notably, between Israel and Palestine. [What] would bring variables to the disinflation process, given what we see already (audio distortion) in the sticky inflation service sector and the recent surge in commodity prices? And what does it mean for monetary policy? Thank you.
Mr. GOURINCHAS: The sound wasn’t really too great, so let me‑‑I think the question was about the impact of the situation in the conflict between Israel and Gaza on the disinflation process and monetary policy. Did I get that right?
Mr. DE HARO: Yeah. Exactly.
Mr. GOURINCHAS: What we can say there, as I said earlier, we are monitoring closely the situation. One of the things that we have observed already is that oil prices have increased somewhat over the last few days, by about 4 percent. And of course, this is something that we see often in situations where there is geopolitical instability in the region. We see spikes in energy prices and oil prices. We’ve seen that in previous crises and previous conflicts. And, of course, this reflects the potential risk that there could be a disruption either in the production or transport of oil in the region.
Now, as I said, it’s a little bit too early to assess how much of that move, those movements in oil prices are going to be sustained. The work we’ve done in the Research Department at the Fund suggests that if there is something like a 10 percent increase in oil prices, this would weigh down on global output by about 0.15 percent in the following year and would increase global inflation by about 0.4 percentage points. So that gives you a rough order of magnitude of what the effects could be. But again, I emphasize that it’s really too early to jump to any conclusion here.
Mr. DE HARO: OK. We’re going to continue with the gentleman with the light blue blazer.
QUESTION: OK. Yes. Thank you, Dr. Gourinchas and the IMF team. Eric Martin with Bloomberg News.
I wanted to ask you about some news that came in, even just in the last few minutes as you were speaking here, about China considering a new stimulus package and your outlook in terms of the measures that should be taken, are appropriate from Chinese authorities in terms of supporting and boosting their economy. And whether it’s possible for China ever again to regain the growth momentum that it had enjoyed in previous years.
And also, to ask about the economy, if I may, in Argentina, of course‑‑the IMF’s largest borrowing nation‑‑and what you expect in terms of the economic outlook there, how concerned are you about the inflation impact of the recent stimulus measures announced by the government, and what to be looking for ahead in terms of the IMF’s discussions and relationships with Argentina. Thank you.
Mr. GOURINCHAS: Thank you, Martin. Let me say something about China. And I will turn it over to my colleague, Petya, for Argentina.
On China, obviously, this is one of the large economies that has been revised downward in this round of projections. We are projecting growth of 5 percent in 2023. That is revised down by 0.2 percentage points. We are also projecting that growth next year is going to be lower than expected before. At 4.2 percent, that is revised down 0.3 percentage points. Looming large over this is, of course, the real estate crisis in China, where you have a number of pre‑sold units that have not been completed. You have developers that are in financial difficulty. You have downward pressure on real estate markets. And there is a general lack of confidence in the household sector about what is going to happen in the real estate market.
Clearly, what this calls for is forceful action by the authorities to help‑‑for instance, you know, restructure struggling property developers‑‑to make sure that there isn’t any increase in financial instability, make sure that this remains localized in the real estate market and doesn’t spread out into the broader financial system, and help restore confidence of households that, in a sense, the real estate sector will be cleaned up and prices will be eventually allowed to adjust down.
So that requires forceful action on the part of the authorities. And we’ve seen some measures that have been taken in recent months, in recent weeks. You mentioned something during the press conference. I have not checked my phone, so I don’t know what exactly it is. And these measures are welcome, but they need to be at scale. So certainly, the problem is serious and needs to be tackled appropriately.
Monetary policy can certainly help as well. There is a sense in which monetary policy can be eased. China is in a very different place than the rest of the world, in terms of the inflation pressures. If anything, their inflation numbers are below target, so they have room to ease monetary policy. And they have room to support, on the fiscal side, support the housing‑‑the household sector by redeploying some of the fiscal measures and helping households and consumers. So, these are sort of the measures we would encourage the authorities to undertake. And I think they are moving in that direction, and this is to be welcomed.
On Argentina‑‑
Ms. KOEVA BROOKS: So, on Argentina, our forecasts are unchanged for growth since July. And what they imply is a contraction of output of this year of 2.5 percent, followed by a resumption of growth of 2.8 in 2024.
Now, the contraction this year is very much because of the drought, which we had observed. And then the rebound is also because of the normalization of agricultural production, which is expected in 2024. At the same time, there’s a lot of uncertainty around the forecast, especially in 2024, as imbalances are building.
And speaking of that, our inflation forecast for this year has been increased to over 135 percent year end. And this was because of the higher‑than‑expected impact of the exchange rate realignment in August, as well as some of the policy slippages that we had observed. And all of this calls for a policy response for tighter fiscal policy, supported by also tight monetary policy to address some of these imbalances. Thank you.
Mr. DE HARO: OK. We’re going to continue in the room. We are going to go to the lady, back.
QUESTION: Hi. Good morning, everyone. Silvia Berzoni, Class NBC.
In July, you revised upwards Italian GDP estimates, which are now cut to 0.7 percent both for 2023 and 2024. I wanted to ask, what has changed? And what is weighing on growth?
And the second question will be on the inflation outlook. We will go from 6 percent to 2.4 percent in 2024. So, what is driving such a sharp disinflationary path? Thank you very much.
Mr. GOURINCHAS: On Italy, I will start. And then I will hand it over to my colleague, Petya, as well.
I think it’s one of those economies where we are seeing, on the one hand, there has been some positive impulse that is coming from the National Resilience and Recovery Plan. For instance, the EU funds that have been deployed in the last few years. But on the other hand, we’re seeing also weakening momentum. We see that construction has become weak and manufacturing also. And this is in a context that I have already mentioned, where the services sector is also weakening. And we’re seeing that in Italy as well.
Petya, any additional details?
Ms. KOEVA BROOKS: Sure.
So, we are expecting growth this year to be 0.7 and then also 0.7 in 2024. We have revised down the growth rates for both this year and next. What’s behind this is, although we had a strong Q1 of 2023, then we observed a contraction in the second quarter of this year. And what was behind this was a relatively weak domestic demand, as some of the incentives on home renovations had expired; and we also observed a collapse in investment, in construction investment. At the same time, we also saw a weaker trade environment, which contributed to this downgrade.
Now, when it comes to inflation, we are expecting inflation to come down in a way that is similar to what we are also expecting in other countries. Part of that, the decline in headline inflation is related to the unwinding of the increases in energy prices. And, of course, the tighter monetary policy, the tighter financing conditions are also expected to contribute to this decline in inflation‑‑in Italy, as well as the rest of the eurozone.
Mr. DE HARO: OK. We are going to move to the right side. We are going to start here in the front row.
Excuse me. Please respect your order. I will go back to that side if there’s time, but I am trying to manage the room. OK? So please be patient and respect your colleagues.
Please go ahead.
QUESTION: Thank you. (Name-inaudible) from Bloomberg. Two questions, if I may very quickly.
China’s slowdown is a big theme within the report. And one of the things that we also notice in it is that you are pointing to a 10 basis point decline in exports as well from emerging economies. Could you give us a sense of how big an effect China’s slowdown is having on economies, particularly in sub‑Saharan Africa, your big resource exporters‑‑Angola, Nigeria, South Africa, and so on?
Secondly, you also argue that monetary policy needs to remain tighter for longer; but for a lot of SSA economies, the key drivers of inflation tend to be, you know, high food prices, high energy prices, things that really, monetary policy cannot touch. So in that sense, isn’t that advice, in some way, a bit like, you know, trying to get a sledgehammer to kill a mosquito?
Mr. GOURINCHAS: OK. So let me address your question.
So, first, yes, of course, the slowdown in China is a big part of the story. And it is true that whenever the Chinese economy slows down or experiences something like what we’re seeing this year, this has spillovers to the rest of the world. Our estimates are that typically, if there is one percentage point lower growth in China, this translates into something like 0.3 percentage‑point lower growth in the rest of the world. Now, it’s not uniform in the rest of the world. Of course, it’s going to be mediated, in part, through the trade panels. And so trading partners, close trading partners of China‑‑whether they’re in the region or elsewhere, and some of them could be in Africa‑‑will be more affected than more distant trading partners. But overall. It will, of course, weigh down on China and the rest of the world.
Actually, in the WEO report, we look at a risk scenario, where the slowdown in China could be larger than what we have in our baseline. In the baseline, we are revising down growth this year and next. But because we have some concerns about the extent and how the real estate crisis might develop, we also look at a risk scenario where this becomes larger. And in that risk scenario, growth in China would be coming down by an additional 1.6 ‑‑ or the output level would be down by 1.6 percent in China. And that would also translate in about 0.6 percent lower output in the rest of the world. So along the same orders of magnitude that I mentioned. So that, of course, would have implications elsewhere.
On monetary policy and energy prices, you are absolutely right. A number of regions in the world have seen a huge increase; in particular, in the headline part of the price index coming from the energy and, for some countries, food prices as well. Now, does that mean that there’s no role for monetary policy? And the answer is, no. Why? Well, because these shocks to headline inflation tend to feed into broader measures of inflation. They first hit your energy bill; but then the energy bill is, you know, part of the production cost for businesses; it is part of the living expenses for workers. So, then it leads to higher demand for wages. It leads to higher prices for businesses. Then it gets into underlying measures of inflation.
And what is really important for monetary policy is to make sure that the underlying measures of inflation are going to be coming down. And if this is not contained, then it gets into measures of expectations of inflation. You see inflation high for a while. Then you come to expect inflation to be high for a while. And then it becomes almost self‑sustaining.
So monetary policy has a role to play in order to make sure that both inflation expectations and underlying measures of inflation are contained, even if the source of the shock, as you rightly pointed out, could be on the energy side. And this is why our recommendation for monetary‑‑central banks around the world, in the face of a fairly persistent energy price shock, is that they needed to tighten monetary policy. And this is showing‑‑this is showing its effects already in the world economy. It has been cooling off global output, for sure; but it’s also showing signs that it’s helping in bringing down inflation and bringing it back down to central bank targets.
Mr. DE HARO: OK. We are running out of time. But we will have time for two more questions. I am going to go with the lady with the white shirt.
QUESTION: Thank you, Jose. Deepshikha from The Economic Times, India. Two questions.
In your India assessment, you have raised the growth projection for India and also raised the inflation projection. In the backdrop of, you know, what’s happening to oil, the hardening of U.S. interest rates and appreciation in dollar, what is your assessment going forward for India? What kind of an impact could it have? And also, in line with the inflation projection, do you see room for a further interest rate tightening by monetary policy ‑‑ authorities?
Mr. GOURINCHAS: Thank you. On India, we have‑‑
Actually, India is one of the countries, one of the large emerging economies that has been doing better than expected. It has been doing better for a while now. And we’ve mentioned that India is, in fact, one of the growth engines in the world economy at this point. And we are revising growth for the fiscal year to 6.3 percent. That is a 0.2 percentage point upward revision for this year. We are not changing our projections for the next fiscal year. They remain at 6.3 percent. But that’s a robust growth number, although it’s a little bit of a slowdown from last year. And you are right, that inflation is also pushing up in India. We have an upward revision for inflation, to 5.5 percent. And some of this is related to increased food prices in the country.
Daniel, anything to add on India?
Mr. LEIGH: I would just add that we do expect, for India, inflation to come down to 5, 5.5 percent, to be well inside that target range of 2 to 6 percent this year and 4.6 percent next year. So well inside the band. That is conditional, though, on the monetary policy continuing to be very focused on delivering price stability and ‑‑ while preserving financial stability. Continuing to be a data‑dependent approach is what is needed. What would also support this effort is more fiscal consolidation, especially over the‑‑in terms of a medium‑term plan to reduce debt, that would also support the monetary policy in reducing inflation.
Mr. DE HARO: OK. We’re going to go back to this side of the room. We’re going to go with the gentleman with the pen in his hand.
QUESTION: Merci. Bonjour.
[Through interpreter]
Thank you. (Name-inaudible) from [Maroc Abdul].
What are your projections for the Moroccan economy? What is the IMF interested in? Only macroeconomic indicators, like headline and core inflation? For core inflation in Morocco, their basket has nothing to do with real prices that are skyrocketing. Is the IMF only interested in macroeconomic indicators that do not create jobs? Are the IMF growth‑‑does the IMF not care that its projections do not bear any link with the reality?
Mr. GOURINCHAS: I will answer in English.
So, first, the question was about the kind of macroeconomic variables we look at. And in the context of Morocco, the weight we put on food prices, versus underlying measures of inflation, and how we weigh this in our projections. And I think we certainly are very concerned about rising food insecurity globally. We’ve seen a sharp increase in food insecurity. We’ve seen that a much larger number of people in the world are in situations where the access to the required caloric intake is not necessarily guaranteed in the wake of a sharp increase in food prices. And we’ve seen also that the increase in food prices tends to hit more parts of the world, where people are already more food insecure. So, it’s really creating a lot of hardship. So, we do pay a lot of attention to that. And we’re certainly concerned about some of this, which is why, for instance, we’re calling for countries not to impose restrictions on food exports because, while this may be beneficial in their own country, in a narrow sense, it can also create and exacerbate food insecurity more broadly and in a way that would not be welfare‑enhancing.
On the specifics of Morocco, there was a little bit of a discussion on the side here. I am not exactly sure who is taking the question. Daniel. Daniel is taking the question. Thank you.
Mr. LEIGH: Thank you. I am going to answer in English.
We have a forecast for Morocco that is going up in 2023. We have got 1.3 percent in 2022. Then 2023 is going up to 2.4 percent. Because there was, actually, a very strong first half of the year before the earthquake in the agricultural sector, despite the drought, but there was some normalization, and very strong tourism. So overall, still 2.4 percent growth for this year, rising to 3.6 percent next year. A lot of this will also be supported by the reconstruction efforts. It’s heartening to see the voluntary contributions; 1 percent of GDP are going to be helping to finance this effort. And inflation‑‑inflation in Morocco we see coming down toward 4 percent by the end of this year. Thank you.
Mr. DE HARO: OK. I’m afraid that we don’t have more time. But on behalf of Pierre‑Olivier, Petya, Daniel and the Communications Department I want to thank you all for attending.
Don’t worry. There’s going to be plenty of press briefings, where you’re going to be able to ask your questions.
I hope that you have a good rest of your day. Shukran. Thank you very much.
Source – IMF