According to the International Monetary Fund, Britain will continue to be the poorest performing large economy this year, even with significant improvements in its forecasts.
The UK’s strong economic performance this year has meant that it is expected to see a 0.3pc drop in GDP by 2023. This is half of the 0.6pc predicted by the IMF in January. According to the IMF’s latest World Economic Outlook, the decline was 0.6pc.
This means that the UK will continue to be the worst performing large economy in the world. In Russia, which was hit by broad-ranging sanctions from Europe as well as the US after the Ukraine war, GDP is expected to increase by 0.7 percent this year.
The UK’s GDP will also shrink faster than Germany’s. Germany is currently in recession and struggling to recover from the soaring energy costs. According to the IMF, Europe’s largest economy will see a 0.1pc decline in growth. This is a decrease from January’s 0.1pc growth.
Pierre-Olivier Gourinchas was the IMF’s Economic Counsellor. He stated that while the UK had performed better than expected in the first three months, it still faced more headwinds due to its higher interest rates and exposure to the oil crisis. He suggested that Brexit may have influenced IMF’s calculations.
“There’s a greater dependence on energy with high shares of gas, there is a major negative impact in terms of trade shock and there’s tight labour market, so there’s been an urgent need for tightening monetary policy.”
The UK saw the largest post-Covid rebound, with the highest GDP growth in the G7 from 2022.
The IMF has been historically one of the most pessimistic predictors for the UK’s economy. Even with recent upgrades, its expectations remain below those of the Office for Budget Responsibility and Organisation for Cooperation and Economic Development. Both have forecast a 0.2pc contraction.
However, Britain has proven the IMF wrong so far . The 0.3 percentage points increase in UK’s economic outlook this year was the biggest in the G7 and the largest worldwide.
Only Russia and Spain saw an increase of 0.4 percentage points each, while Saudi Arabia saw a 0.5 point increase.
Japan’s GDP growth forecast, however, was cut by 0.5 points to 1.3%.
Italy is forecast to grow by 0.7pc, which is up from the previous forecast of 0.6%. The US was upgraded from 1.4pc at 1.6pc. Canada and France remained unchanged at 1.5pc each.
The UK’s longer-term outlook is improving. In addition, the IMF raised its 2024 GDP forecast for the UK by 0.1 percentage points to 1 percent. It downgraded its 2024 forecasts for Germany and France by 0.3 points.
The global economic outlook looks grim. Although the IMF warned of serious risks to financial stability, it is certain that global economic growth will plummet over the next five year to its lowest point since 1990.
IMF predicts that global GDP growth will drop from 3.4pc by 2022 to 2.99pc by 2023. This is based on a 3-pc five-year forecast.
The greatest slowdown will be in advanced economies, where growth is expected to fall to 1.3 % this year, which is less than half of the 2022 rate.
Innes McFee is the chief global economist at Oxford Economics. She warned however that growth will be slower.
McFee stated that McFee’s forecasts were too optimistic and underestimated the impact tightening financial conditions would have on advanced economies during the second half of the year and next.