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UK economy to fare worse than any developed economy in 2023 IMF forecasts

Geoff Riley

31st January 2023

Some gloomy macro news for the UK today. The IMF has upgraded its forecasts for the global economy; UK is now only leading economy expected to contract in 2023.

Overall, the IMF projects global growth to fall from 3.4% in 2022 to 2.9% in 2023, and then rise to 3.1% in 2024. Inflation is peaking amid low growth. Inflation is set to drop but will still be above pre-pandemic levels in more than 80% of countries next year.

Here are the real GDP growth projections for 2023.

USA: 1.4%
Germany: 0.1%
France: 0.7%
Italy: 0.6%
Japan: 1.8%
UK: -0.6%

China: 5.2%
India: 6.1%
Russia: 0.3%
Brazil: 1.2%
Mexico: 1.7%
KSA: 2.6%
Nigeria: 3.2%
RSA: 1.2%

As always, it is worth remembering that forecasts are just that - forecasts - and subject to error. The actual out-turn can vary greatly from what is expected by macroeconomists who don't necessary spend all of their working hours in the real world running businesses and trying to manage household finances.

A crucial aspect will be the extent to which the Bank of England continues to tighten monetary policy with further interest rate increases - the latest of which might arrive later on this week. Another factor will be the actual depth of any fall in house prices and a turning point in hiring from businesses ranging from tech to construction.

There are many moving parts in macroeconomics.

More here from the Financial Times

What are the problems in making macroeconomic forecasts?

  1. Uncertainty in economic data: Accurate forecasting requires reliable data, but economic data can be subject to revisions, measurement errors, and gaps.
  2. Complexity of the economy: The economy is complex, with many interrelated factors that can influence macroeconomic outcomes, making it difficult to predict future developments.
  3. Non-linearities: The economy may exhibit non-linear relationships, where small changes in one variable can have large effects on others, making it challenging to predict future trends.
  4. Unforeseen events: Economic forecasts are subject to unexpected events, such as natural disasters, political upheavals, and technological innovations, that can have significant impacts on the economy.
  5. Model limitations: Macroeconomic models are based on assumptions and historical data, but these may not hold in the future, leading to inaccurate forecasts.
  6. Human behaviour: Economic forecasts also rely on the assumption of rational human behaviour, but this may not always be the case, making it difficult to accurately predict consumer and business behaviour in different markets and industries.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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