WEO: Supply chain recovered, inflation remains high
The IMF’s world economic outlook (WEO) for July 2023 said supply chains have largely recovered and shipping costs and suppliers’ delivery times are back to pre-pandemic levels. But the forces that hindered growth last year still persist.
“Inflation remains high and continues to erode household purchasing power. Policy tightening by central banks in response to inflation has raised the cost of borrowing, constraining economic activity. Immediate concerns about the health of the banking sector have subsided, but high interest rates are filtering through the financial system, and banks in advanced economies have significantly tightened lending standards, curtailing the supply of credit,” the outlook said on Monday.
Global economic activity was resilient in the first quarter of 2023, it said, mostly driven by the services sector.
It added that excess savings built up during the pandemic are declining in advanced economies, especially in the US, implying a slimmer buffer to protect against shocks, including those to the cost of living and those from more restricted credit availability.
It said inflation continues and despite its ease in most countries, it remains high, with divergences across economies and inflation measures.
But core inflation has, on average, declined more gradually and remains well above most central banks’ targets.
As for stress in the banking sector, it has decreased after authorities stepped up in March resulting in a banking scare remaining contained and limited to problematic regional banks in the US and Credit Suisse, Switzerland.