December 2, 2022

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IMF warns of grim outlook for global economy: “The worst is yet to come”

File photo. A view of the International Monetary Fund logo outside the organization’s headquarters in Washington, USA. REUTERS/Yuri Kripas

The International Monetary Fund has warned of a bleak outlook for the global economyEfforts to manage the highest inflation in decades could add to the damage from the war in Ukraine and China’s slowdown.

The IMF cut its global growth forecast for next year to 2.7% from 2.9% in July and 3.8% in January, and sees a 25% chance of growth slowing.

The risk of policy miscalculation has risen sharply as growth remains weak and markets show signs of crisis, the IMF said in its global economic outlook on Tuesday. A third of the global economy is at risk of contracting next yearHe said, and the United States, the European Union and China are deadlocked.

The impact of central bank monetary policy tightening will be felt globallyAnd the strength of the dollar against emerging and developing market currencies will increase inflation and credit pressures.

Barring an unprecedented recession in 2020 due to the coronavirus pandemic, next year’s performance will be the weakest since 2009 in the wake of the global financial crisis.

“The worst is yet to come, 2023 will be a recession for many”The lender’s chief economist wrote, Pierre-Olivier Gourinchas, in the report’s preface. “As storm clouds gather, policymakers must keep a steady hand.”

File photo.  A man looks out the window of a butcher shop in Ankara, Turkey.  February 16, 2022. REUTERS/Cagla Gurdogan
File photo. A man looks out the window of a butcher shop in Ankara, Turkey. February 16, 2022. REUTERS/Cagla Gurdogan

The warning comes as finance and central bank chiefs gather in Washington for the lender’s annual meetings. Speaking earlier on Monday, IMF Managing Director, Kristalina GeorgievHe warned that high borrowing costs in the US, the world’s largest economy, were “starting to take their toll”, while the head of the World Bank, David Malpasspointed to the “real danger” of a global recession.

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To be sure, the IMF sees too much risk for central banks to do too little amid persistent price pressures, which would lose credibility and only increase the ultimate cost of controlling prices.

Inflation will peak later this year, the IMF predicts, at an annual rate of 8.8%, and will remain elevated for longer than expected, falling to 6.5% next year and 4.1% in 2024.

This year, the IMF forecasts global growth at 3.2%, unchanged from July, but more than a quarter ahead of the 4.4% forecast in January, before the Russian president. Vladimir PutinUkraine ordered the invasion, which disrupted food and fuel flows and fueled global inflation.

The euro area economy will grow by just 0.5% in 2023, according to the Fund, and the Federation will see steeper visibility reductions among world regions. Germany, Italy and Russia will see their economies shrink.

Warning signs in front of a gas compression station, part of the Polish section of the Yamal gas pipeline connecting Russia to Western Europe, owned by the joint venture of Gazprom and PGNIG (REUTERS/Kacper Pempel).
Warning signs in front of a gas compression station, part of the Polish section of the Yamal gas pipeline connecting Russia to Western Europe, owned by the joint venture of Gazprom and PGNIG (REUTERS/Kacper Pempel).

Although the energy crisis in Europe caused by Russia’s reduction in natural gas supplies will challenge the continent this winter, next winter will be even tougher, according to the fund.

Gourinjas urged countries not to implement fiscal policy against what central banks are trying to do as countries grapple with an energy crisis that is pushing up prices.

“If you try to do this, it’s like trying to drive a car with two drivers,” he said in an interview. Bloomberg Television. “It’s not going to work,” he added: “You have to make sure you don’t create jitters in the market and you have a financial plan that doesn’t add inflationary pressures.”

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The US will expand by 1% next year, unchanged from the previous perspective. The outlook for this year has been cut to 1.6% growth from 2.3% seen in July.

Advanced economies are forecast to grow 1.1% next year, compared to 3.7% for emerging markets and developing economies.

An employee fills a car's tank at a gas station in Nanjing, Jiangsu province, China, March 25, 2009.  REUTERS/Sean Yong
An employee fills a car’s tank at a gas station in Nanjing, Jiangsu province, China, March 25, 2009. REUTERS/Sean Yong

Next year, India will become the largest economy in the world, with a growth of 6.1%. China will grow by 4.4%.

The recession in Russia may not be as steep as expected in July, with the country now forecast to contract by 3.4% this year, compared with the previous forecast of 6%. Brazil raised its forecast for this year by 1.1 percentage points to 2.8%.

A stormy global economy risks prompting investors to seek safe-haven assets such as U.S. Treasuries, pushing the dollar further and putting pressure on the debt of emerging and developing countries.

“It’s time for emerging market policymakers to stop hatching,” Gourinchas wrote. This includes eligible countries seeking access to IMF preventive support.

Gourinjas wrote that the world should move towards orderly debt restructuring through a common framework developed by the Group of 20 (G20) largest economies for the most affected low-income countries.

(By Eric Martin for Bloomberg)

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