The International Monetary Fund (IMF) stated on Tuesday that it expects global growth to drop even further in 2023, lowering its predictions as countries deal with the consequences from Russia’s invasion of Ukraine, rising cost of living, and economic downturns.
In addition to the coronavirus outbreak and the ongoing conflict in Ukraine, surging expenses and rising interest rates pose a serious threat to the global economy.
In a blog post released in tandem with the IMF’s most recent World Economic Outlook, economic counsellor Pierre-Olivier Gourinchas warned that “this year’s shocks will re-open economic scars that were only partially healed post-pandemic.”
He predicted that the United States, the European Union, and China, the world’s three largest economies, will all continue to stagnate this year or the next.
The year 2023 “will feel like a recession for many people,” warned Gourinchas.
The IMF lowered its projections for global GDP growth in 2023 from 2.9 percent to 2.7 percent.
The organization’s global growth projection for 2018 has not changed.
According to the IMF, the global growth profile is at its poorest since 2001, with the exception of the global financial crisis and the worst of the pandemic.
This reflects slowdowns in the world’s largest economies, such as the United States’ GDP contracting in the first half of 2022 and continued lockdowns in China as it battles a property crisis.
Gourinchas said on Tuesday that while the global economy is likely to avoid recession, there is a one-in-four possibility that growth might slip to 2 percent or below.
He told AFP that such a thing had occurred only five times since 1970, citing the oil price shock in 1973, disinflation in 1981, and the financial crisis of 2008 as examples.
Focusing in, a policy move by central banks to rein in surging inflation has contributed to the slowdown by raising interest rates and cooling domestic demand.
According to the IMF research, rising pricing pressures pose the greatest immediate threat to economic growth, prompting central banks to become “laser-focused on restoring price stability.”
This year, global inflation is forecast to reach a high of 9.5% and then gradually decline to 4.1% by 2024.
Gourinchas said that misjudging inflation’s endurance could undermine central banks’ credibility and threaten future macroeconomic stability.
At a press briefing on Tuesday, he was asked about the Federal Reserve’s rate hikes and said that while the IMF isn’t advocating for an acceleration, that “doesn’t mean that they should pause on (their) path.”
Reason being, as countries began to recover from the pandemic, banks began with record low interest rates.
The organization warned that many low-income nations are either in or near to debt crisis, but that this does not guarantee a severe collapse is unavoidable.
In spite of the G20’s agreement on a “single framework” for debt restructuring for the poorest countries, just three have qualified, and “further progress is needed,” as Gourinchas told reporters.
He warned that “time may soon be running out.”
The IMF has lowered its projections for the United States and China, the world’s two largest economies, as a result of the slowdown in both countries.
The IMF has lowered its prediction for US economic growth this year to 1.6% from 1.7% in July due to a “unexpected real GDP decrease in the second quarter.”
The research notes that “consumer demand continues to be eroded by declining real disposable income” and that “rising interest rates are taking a significant toll on spending.”
The Federal Reserve’s aggressive rate hikes to combat rising inflation have dampened economic activity. Additional hikes, according to the central bank, are imminent.
Vice President Joe Biden has acknowledged the prospect of a “slight” economic downturn.
I don’t think we’ll have a recession very soon,” he told CNN. “If so, it will be a mild economic downturn. That is, we’re going to drop a notch.”
The growth rate forecast for China’s GDP this year is 3.2%, the lowest in decades and second only to the initial coronavirus outbreak.
A worsening of China’s property sector slump, the fund warned, might have repercussions for the local banking sector, thereby dampening economic growth.
The IMF predicts that the European Union’s economic slowdown will worsen in 2019, with Germany and Italy particularly vulnerable to recession as a result of their reliance on Russian gas supplies.
The IMF has declared that the worldwide shift in energy commerce, precipitated by Russia’s invasion, is “broad and irreversible.”
Because of the severe blow, “there is no rebound in sight in the Russian economy,” Gourinchas told AFP.
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