IMF warns ‘worst is yet to come’ for world economy Remote video URL
The International Monetary Fund (IMF) said Tuesday that the world economy was headed for “stormy waters” as it downgraded its global growth projections for next year and warned of a harsh worldwide recession if policymakers mishandled the fight against inflation.
The grim assessment was detailed in the fund’s closely watched World Economic Outlook report, which was published as the world’s top economic officials traveled to Washington for the annual meetings of the World Bank and the IMF.
The gathering arrives at a fraught time, as persistent supply chain disruptions and Russia’s war in Ukraine have led to a surge in energy and food prices over the past year, forcing central bankers to raise interest rates sharply to cool off their economies.
Raising borrowing costs will probably tame inflation by slowing business investment and consumer spending, but higher rates could also yield a new set of problems: a cascade of recessions in rich nations and debt crises in poor ones.
There are growing fears among policymakers that a so-called soft landing will elude the global economy.
“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the IMF report said.
The organization maintained its most recent forecast that the global economy will grow 3.2 percent this year but now projects that will slow to 2.7 percent in 2023, slightly lower than the fund’s previous estimate.
Both figures are big comedowns from the start of the year, when the fund projected global growth of 4.4 percent in 2022 and 3.8 percent in 2023, highlighting how the outlook has darkened in recent months.
Inflation is expected to peak later this year and decline from 8.8 percent in 2022 to 6.5 percent in 2023.
“The risks are accumulating,” IMF’s chief economist Pierre-Olivier Gourinchas, said as he described the global economy as weakening.
“We’re expecting about a third of the global economy to be in a technical recession.”
The IMF defines a “technical recession” as an economy that contracts for two consecutive quarters.
The IMF report detailed how the economies of the United States, China and the 19 nations that use the euro are in various states of slowing, with effects rippling around the world.
In the US, inflation and rising interest rates are sapping consumer spending power, and housing activity is slowing as mortgage rates rise.
A recent three-month dip in gasoline prices gave consumers some relief from inflation, but prices have started to rise again. There are concerns that trend could continue after the oil production cut announced last week by the international cartel known as OPEC+.
IMF forecast that the US economy would grow 1.6 percent this year, a downgrade from its previous projection, and 1 percent in 2023.
In China, lockdowns to prevent the spread of Covid-19 continue to drag on its economy, which is projected to grow 3.2 per cent this year after expanding 8.1 percent in 2021.
Europe has been heavily reliant on Russia for energy and is facing sharp increases in oil and gas prices as additional sanctions go into effect later this year, just as the weather turns colder.
Tourism has buttressed many of the economies of Europe in 2022, but uncertainty about energy prices has slowed manufacturing activity.
Efforts to respond to inflation have led to policy proposals that have caused their own upheaval.
The IMF urged policymakers in those countries to “batten down the hatches” and conserve their reserves of foreign currencies for when financial conditions worsen.