UK to remain world's largest and worst-performing economy in 2023

Pierre-Olivier Gourinchas, IMF economic adviser, said the UK is facing more headwinds than other countries due to Higher Interest Rates and Exposure Energy Crisis Photo: Jose Luis Magana/AP

The UK will continue to be the world's biggest and worst-performing economy this year, according to the International Monetary Fund (IMF), even after a significant upgrade in its forecasts.< /p>

Stronger-than-expected economic performance this year means UK GDP will contract by 0.3 percent in 2023, half the 0.6 percent decline projected by the IMF in January, according to the latest global economic outlook.

The UK's GDP is expected to contract more than that of Germany, which is struggling to avoid a recession and recover from soaring energy prices. The IMF predicts that Europe's largest economy will contract by 0.1 percent, compared with 0.1 percent growth in January.

Pierre-Olivier Gourinsha, the IMF's economic adviser, said that while the UK economy outperformed expectations in the first three months of the year, it faced more headwinds than other countries due to higher interest rates and exposure to the energy crisis. He also suggested that Brexit has affected the IMF's calculations.

Mr Gurnicas added: “There is a higher dependence on energy with a high share of gas, there is a serious negative in terms of a trade shock, and there is a limited labor market , so aggressive monetary tightening has become necessary.”

The UK also recorded its biggest post-COVID rebound, posting the strongest GDP growth in the G7 in 2022.

The IMF has historically been one of the most pessimistic forecasters for the UK economy. Even with recent updates, its expectations are still below those of the Fiscal Responsibility Office and the Organization for Cooperation and Economic Development, which forecast a contraction of 0.2 percent.

But the UK has so far proven the IMF forecasters wrong. The 0.3 percentage point increase in UK economic forecasts this year was the largest increase in the G7 and one of the largest in the world.

The biggest increase in the G7

This increase was second only to Spain and Russia (0.4). percentage points, as well as Saudi Arabia, where the forecast for GDP growth was raised by 0.5 points.

In Japan, by contrast, the forecast for GDP growth was reduced by 0.5 points to 1.3%.

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In Italy, growth of 0.7% is expected compared to the previous forecast of 0.6%; the US was raised from 1.4% to 1.6%; while Canada and France remained unchanged at 1.5% and 0.7% respectively.

Long-term prospects in the UK are also improving. The IMF raised its UK GDP forecast for 2024 by 0.1 point to 1%. In France and Germany, by contrast, he lowered his forecasts for 2024 by 0.3 points.

The global economic outlook is bleak. The IMF has warned of serious risks to financial stability, but even if they can be avoided, global economic growth in the next five years will fall to the lowest level since 1990.

The IMF expects global GDP growth to decline from 3. 4% in 2022 to 2.8% in 2023, with a 5-year forecast of 3%.

The biggest slowdown will be in advanced economies, with growth slowing to 1.3% this year less than half the pace recorded in 2022.

But Innes McPhee, chief global economist at Oxford Economics, warned that growth is likely to be even slower.

Mr McPhee said: «We think their forecasts underestimate the impact that financial tightening will have on advanced economies in the second half of this year and next.»