The IMF downgraded its predictions for global growth on Tuesday as nations deal with the effects of Russia’s invasion of Ukraine, rising living expenses, and global economic downturns.
The conflict in Ukraine has increased the cost of food and energy in response to the coronavirus outbreak, and rising costs and interest rates pose a threat to the global economy as a whole.
In a blog post that accompanied the International Monetary Fund’s most recent World Economic Outlook, economic adviser Pierre-Olivier Gourinchas warned that this year’s shocks will reopen economic wounds that had only partially healed after the pandemic.
He cautioned that the three largest economies — the United States, the European Union, and China — will continue to stagnate and that more than one-third of the world economy is on track to decrease this year or the following year.
According to Gourinchas, “the worst is still to come and 2023 will seem like a recession.”
The IMF revised its 2023 global GDP prediction downward by 0.2 percentage points to 2.7 percent in its report.
It continues to predict 3.2 percent global growth for this year.
Aside from the worst of the epidemic and the global financial crisis, the global growth profile is at its “weakest” point since 2001, according to the IMF.
This reflects slowdowns for the largest economies, such as a decline in the US GDP in the first half of 2022 and ongoing lockdowns in China due to a crisis on the real estate market.
A major contributing element to the downturn is a change in policy as central banks attempt to rein in skyrocketing inflation, with higher interest rates beginning to cool domestic demand.
According to Gourinchas in the research, rising price pressures pose the biggest immediate threat to prosperity, and central banks are currently “laser-focused on restoring price stability.”
Global inflation is anticipated to reach a record this year of 9.5 percent before declining to 4.1 percent by 2024.
He cautioned that underestimating the duration of inflation could threaten macroeconomic stability in the future “by seriously weakening the hard-won credibility of central banks.”
When asked about the Federal Reserve’s rate increases, Gourinchas stated during a news conference on Monday that while the IMF is not recommending an acceleration, they should also “not pause on the path… that we’ve observed.”
As nations recovered from the pandemic, banks began operations at a time when interest rates were historically low, he claimed.
However, the fund also cautioned that many low-income nations are either in, or on the verge of, debt trouble. The current issues do not make a significant slump likely.
To prevent a wave of national financial crises, progress toward debt restructurings for the most severely affected is required.
Time might soon be running out, Gourinchas said.
Only three of the poorest 20 nations have qualified for the G20’s restructuring “common framework,” and more progress is required, he told reporters.
The IMF has also decreased its projections for China and the two largest economies in the world, the United States.
Due to a “unexpected real GDP decrease in the second quarter,” the IMF revised its projection for US economic growth this year down 0.7 percentage points to 1.6 percent from its July estimate.
According to the research, “declining real disposable income continues to eat into consumer demand, and increasing interest rates are having a significant impact on expenditure.”
Interest rates have been aggressively increased by the Federal Reserve in an effort to rein in inflation, which is out of control and slowing down economic growth. And the central bank has predicted that there will likely be more increases.
The IMF forecasts that a slowdown in the Euro area will worsen next year, with the economies of Germany and Italy experiencing a modest decline.
Apart from the initial coronavirus outbreak, China’s GDP is predicted to develop at its slowest rate in decades this year—3.2 percent.
The fund issued a warning that a worsening of China’s property sector slump might affect domestic banks and have a negative impact on growth.