IMF Sees Emerging Markets Outpacing in 2023

source: IMF

Emerging market and developing economies are set to outpace the vast majority of advanced economies in 2023, according to the International Monetary Fund, as the world reels from the pandemic, inflation and geopolitical shocks.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades, the IMF said in its latest World Economic Outlook, forecasting global growth to slow to 2.7% in 2023 from 3.2% in 2022.

The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering Covid-19 pandemic all weigh heavily on the outlook, the Fund said.

GDP growth across emerging market and developing countries, however, is seen at 3.7% -- higher than all the G7 economies and only outpaced by a handful of advanced economies including India and China. And the pattern is forecast to continue through 2025.

The world’s biggest economy, the U.S., grew in the third quarter of 2022 after a six-month slump. But Paul Krugman, Nobel prize-winning economist, downplayed the rebound and expects a housing-market slump and weaker exports to shrink the economy down the line.

Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, goes further, predicting the ‘mother of all economic crises’ looming for the world economy after years of propping up unsustainable debt with low interest rates.

From individuals to corporations and governments, borrowing costs are surging as inflation – itself the result of ultra-loose fiscal, monetary and credit policies along with geopolitical shocks like Russia’s invasion of Ukraine – prompts rate hikes, he said last month.

The IMF classifies 39 economies as advanced based on factors including high per capita income and exports, with all other economies considered emerging market or developing. Many economists believe the classifications should be more nuanced.