An economy on the right track, but which has not yet completely left the risks behind. With Italy seeing a significant upward revision of its estimates for this year, now only slightly below what the Bank of Italy and the government indicate as a 2023 outlook.
The update of the IMF World Economic Outlook it is a classic balancing act, as often happens in the forecasts of recent times. The research director Pierre-Olivier Gourinchas writes in his blog accompanying the new numbers that the global economy "continues to recover gradually from the pandemic and the Russian invasion of Ukraine and that" in the short term "there are" undeniable " signs of improvement. The first quarter went off smoothly and the labor market held up, while inflationary pressures started to subside and the banking turbulence left no aftermath. “However, many challenges still lie ahead and it's too early to celebrate,” she cautions.
The IMF's forecasts call for a slowdown in growth from 3.5% last year to 3% this year and next, however with an improvement of 0.2 percentage points for 2023 compared to our April projections. Global inflation is expected to fall from 8.7% last year to 6.8% this year, revised downwards by 0.2 percentage points, and to 5.2% in 2024.
Above all, the advanced economies and the euro area will pay the bill for the slowdown. But Italy does not look bad in comparison with the main competitors. For Italy, Washington marks +1.1% this year and +0.9% the next: an improvement of 0.4 and 0.1 points on the spring forecasts. Italy thus does better than the Eurozone as a whole this year (the forecast is +0.9%) but worse next year (+1.5%). A dynamic that is also repeated in the comparison with individual countries: the Germany is credited with -0.3% and then +1.3%. France by +0.8% in 2023 and +1.3% in 2024. The IMF's forecast for 2023 is therefore slightly more conservative than Bank of Italy, which has recently confirmed +1.3% despite the spring setback.
Numerous alerts remain in Gourinchas' speech. For example, core inflation, which excludes energy and food prices, remains well above central bank targets and is expected to decline gradually from 6% this year to 4.7% in 2024, an upward revision by 0.4 percentage points. 3.1% in 2024. Clearly, in conclusion, the battle against inflation is not yet won.
In this context, the dynamics of the labor market and wages will be decisive. The analysis speaks of labor markets that nevertheless remain particularly bright and overall wage inflation that has indeed increased, but remains lower than price inflation in most countries. For the IMF it has nothing to do with "greedflation", or the fact that companies have increased profits by keeping prices higher than they should, but with the fact that "prices adjust upwards faster than wages when nominal demand far exceeds what the economy can produce. As a result, real wages decreased by around 3.8% between the first quarter of 2022 and 2023 for advanced economies and those of large emerging markets. Now, lower real wages help explain the strength of the labor market. If this strength persists, the blog says, real wages will also recover and nominal wage growth will remain higher even as inflation falls. If the workers wish it.