The International Monetary Fund (IMF) has painted a relatively optimistic picture of the global economy, projecting steady growth this year despite ongoing trade tensions and potential risks from the artificial intelligence (AI) sector.
In its latest World Economic Outlook, the IMF forecasts global growth to reach 3.3% in 2023, up from its previous projection of 3.1%. However, the economic watchdog warned that risks to the outlook remain “tilted to the downside,” highlighting the potential for trade disputes and an abrupt correction in the AI market to weigh on activity.
IMF chief economist Pierre-Olivier Gourinchas told the BBC that while the effects of US President Donald Trump’s tariffs have “definitely slowed down global activity,” there have been “other things that have been more than offsetting” this drag. He cited the “tailwinds from surging investment related to technology, including artificial intelligence (AI)” as a key driver of the resilience in the global economy.
Nonetheless, Gourinchas cautioned that if expectations about AI growth prove to be overly optimistic, a sudden market correction could have a significant impact, given the substantial wealth gains contributed by rising share prices in recent years. He also warned that the increasing debt taken on by firms to fund AI investments could create vulnerabilities.
The IMF’s report also highlighted the risk of a resurgence in trade tensions, which could “prolong uncertainty and weigh more heavily on activity.” It noted that “domestic political tensions or geopolitical tensions could erupt, introducing new layers of uncertainty and disrupting the global economy.”
Regarding the UK, the IMF upgraded its growth forecast for 2023 to 1.3%, slightly up from its previous projection. Chancellor Rachel Reeves celebrated this as the country being “on course to be the fastest growing European G7 economy this year and next.” However, Shadow Chancellor Sir Mel Stride dismissed the 0.1% uptick as “not a triumph.”
The IMF also emphasized the importance of central bank independence, warning that challenges to this “tend to lead to inflation and higher borrowing costs over time.” Gourinchas said preserving the independence of central banks, both legally and operationally, is “critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and enabling them to achieve their mandates.”
This comes amid concerns over the “unprecedented” US Justice Department investigation into Federal Reserve Chair Jerome Powell’s testimony about the central bank’s building renovations. The IMF cautioned that without central bank independence, “the economic environment deteriorates pretty rapidly.”