The United Kingdom is expected to perform better than European Union countries in terms of economic growth next year, per data from the International Monetary Fund (IMF). Analysts attributed the development to its withdrawal from the European Union in 2020.
Although Brexit put the U.K. economy at slower growth, analysts said this policy had freed the country from political and economic complications within mainland Europe. Brexit also enabled businesses and the investment sector to flourish, albeit not at a fast pace.
The sterling managed to rebound last Friday despite a continuous decline in the previous weeks. It gained 0.6 percent against the U.S. dollar following Prime Minister Liz Truss's revision of her administration's fiscal plan. The previous plan was tax cuts for households, while businesses would pay the same tax rate.
After replacing Kwasi Kwarteng with Jeremy Hunt as finance minister, the U.K. government decided to increase business tax to 25 percent in 2023. Analysts, however, predicted that the sterling would remain volatile this week. The IMF also projected a global economic slowdown in 2023, with several major economies likely going into recession.
"The three largest economies, the United States, China and the euro area, will continue to stall," IMF chief economist Pierre-Olivier Gourinchas said. "In short, the worst is yet to come, and for many people, 2023 will feel like a recession."
According to the IMF, the global gross domestic product growth rate will decelerate to 2.7 percent, lower than the initial projection of 2.9. The main reasons for this slowdown include the interest rate increases by the U.S. Federal Reserve, the energy crisis in Europe and China’s weakening economy due to the COVID-19 pandemic.
With energy prices continuing to increase, several countries in Europe will go into a “technical recession” by 2023. China is also expected to see slower economic growth due to the downfall in its property sector.
In its Global Financial Stability Report, the IMF explained that pressures from these volatile economic situations might cause disorder in asset repricings and “financial market contagions.”
Despite the 2023 projection, the IMF maintains its 2022 economic growth projection at 3.2 percent due to Europe’s stable performance this year, despite the U.S.’s weaker growth.
IMF urges Asian central banks to maintain tight policies
The IMF has urged central banks in Asia, except Japan and China, to maintain tight fiscal policies. The global lender noted that inflation rates in Asian nations were above their initial targets due to the plunge in their currencies against the U.S. dollar and rising commodity prices.
IMF Asia and Pacific Department head Krishna Srinivasan said that currency depreciation had caused import costs to soar in the continent. He added that Asian countries with higher debts would experience inflation more intensely if the values of their currencies continued to depreciate. Asia is currently the largest debtor in the global economy, despite being “the biggest saver.”
"While our baseline is for inflation to have peaked by end-year, large exchange-rate depreciations could lead to higher inflation and greater persistence, particularly if global interest rates rise more forcefully, and require faster monetary policy tightening in Asia," Srinivasan said.