The International Monetary Fund (IMF) on Tuesday downgraded its 2023 global economic growth forecast amid clashing pressures from war in Ukraine, high energy and food prices, inflation and sharp interest rate hikes, with conditions set to rise next year. He warned that it could get worse.
A third of the global economy is likely to contract by next year, according to the IMF’s latest World Economic Outlook, and the IMF and World Bank will meet at their first face-to-face annual meeting in three years. He said it was off to a solemn start.
“The three largest economies – the United States, China and the euro zone – will continue to slow down,” IMF chief economist Pierre-Olivier Grinchas said in a statement.
“In short, the worst is yet to come and for many people 2023 will feel like a recession.”
The IMF said next year’s global GDP growth will slow to 2.7% compared to its July forecast of 2.9%. This comes as rising interest rates slow the U.S. economy, Europe struggles with surging gas prices, and China struggles with her ongoing Covid-19 lockdowns, weakening the real estate sector.
The IMF keeps its 2022 growth forecast unchanged at 3.2%. This reflects better-than-expected output in Europe and weaker performance in the U.S. after 2021 global economic growth hit his staggering 6.0%.
US growth is just 1.6% this year, down 0.7 percentage points from July, reflecting an unexpected contraction in Q2 GDP. The IMF has left his 2023 US growth forecast unchanged at 1.0%.
A U.S. Treasury official said ahead of the IMF’s forecast release that the U.S. economy “remains reasonably resilient in the face of significant global headwinds.”
inflation
The IMF said its outlook would depend on a delicate balancing act by the central bank to deal with inflation without tightening too much. This could plunge the global economy into an “unnecessarily deep recession”, disrupt financial markets and hurt developing countries. But it pointed squarely at controlling inflation as a greater priority.
“If central banks again misjudge the persistence of stubborn inflation, it could undermine their hard-earned confidence,” Grinchas said. “This will prove far more detrimental to future macroeconomic stability.”
The Fund expects headline consumer price inflation to peak at 9.5% in the third quarter of 2022 and ease to 4.7% by the fourth quarter of 2023.
The IMF said a “plausible combination of shocks”, including a 30% rise in oil prices from current levels, could make the outlook significantly darker and slow global growth to 1.0% next year. rice field.
Other factors in this ‘downside scenario’ include a sharp decline in investment in China’s property sector, a sharp tightening in financial conditions due to the depreciation of emerging market currencies, and a fall in potential output due to an overheated labor market. included.
The IMF says there is a 25% chance that global growth will fall below 2% next year, the first time this has happened five times since 1970, and a greater than 10% chance that global GDP will contract. Stated.
dollar pressure
These shocks could keep inflation rising for an extended period of time, which could continue to put upward pressure on the US dollar at its strongest level since the early 2000s.
The IMF said this is weighing on emerging markets, and any further dollar strength could increase the likelihood of debt pressures in some countries.
Emerging market debt relief is expected to be a major debate among global monetary policymakers at a Washington meeting, with Gourinchas “breaking the hatch” as emerging markets prepare for a tougher situation. He said the time has come.
The appropriate policy for most people was to prioritize monetary policy for price stability, to force the currency to adjust, and to “preserve precious foreign exchange reserves for when financial conditions really deteriorated.” – Reuters
