The International Monetary Fund said on Tuesday that the world economy was heading for “stormy waters” as it downgraded its global growth forecast for next year and warned of a severe recession worldwide. world if policymakers mishandle the fight against inflation.
The grim assessment detailed in the closely watched fund World Economic Outlook Reportannounced when the world’s top economic officials arrive in Washington for the annual meetings of the World Bank and IMF.
The meeting comes at a difficult time, as continued supply chain disruptions and Russia’s war in Ukraine led to soaring food and energy prices last year, forcing central banks to raise interest rates. strong capacity to cool down their economies. Increasing borrowing costs will likely curb inflation by slowing business investment and consumer spending, but higher rates could also lead to a new set of problems: a series of recessions. recession in rich countries and debt crisis in poor countries.
There is growing concern among policymakers that the so-called soft landing would eliminate the global economy.
“In short, the worst is yet to come, and for many, 2023 will look like a recession,” the International Monetary Fund report said.
The organization maintains its most recent forecast that the global economy will grow 3.2% this year but now projects will slow to 2.7% in 2023, slightly below estimates. prior calculation of the fund. Both numbers have been big comedians since the start of the year, when the fund forecast global growth of 4.4% in 2022 and 3.8% in 2023, showing just how bleak the outlook has been. any in recent months.
Inflation is expected to peak later this year and decline to 6.5% in 2023 from 8.8% in 2022.
“Risk is building up,” Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund, said in an interview in which he described the weakening global economy. “We predict about a third of the global economy will enter a technical recession.”
The Fund defines a “technical recession” as an economy that contracts for two consecutive quarters.
American business and Wall Street had to prepare for a recession. Jamie Dimon, chief executive officer of JPMorgan Chase, told CNBC on Monday that the United States is likely to “fall into some kind of recession six to nine months from now.”
Despite the International Monetary Fund’s projections, some private forecasters are predicting worse. The median economist in a Bloomberg survey expects global growth of 2.9% this year and 2.5% next, as the euro zone posts 0.2% growth next year. 2023 and Eastern Europe see production decline.
The IMF report detailed how the economies of the United States, China and the 19 countries that use the euro are experiencing various slowdowns, with ripple effects around the world.
In the United States, rising inflation and interest rates are curtailing consumer spending, and activity in the housing sector is slowing as mortgage rates rise. The recent three-month drop in gasoline prices has helped ease consumer inflation, but prices have started to rise again. There are concerns that the trend may continue after oil production cuts announced last week by the international cartel known as OPEC Plus.
The ongoing shutdowns in China to prevent the spread of Covid-19 continue to drag on the country’s economy, which is forecast to grow 3.2% this year after expanding by eight .1% in 2021. In addition to pandemic restrictions, China is facing a regional asset crisis as cash-strapped homeowners have already refuse to repay loans on unfinished property. The International Monetary Fund warns that China’s housing crisis will spill over into the country’s domestic banking sector.
Europe is already heavily dependent on Russia for energy and is facing steep increases in oil and gas prices when additional sanctions take effect later this year, just as the weather turns colder. Tourism has boosted many of Europe’s economies in 2022, but energy price uncertainty has slowed manufacturing activity.
Efforts to respond to inflation have led to policy proposals that cause volatility of their own. Britain’s financial markets have faced turmoil after investors rejected the tax and spending policies of Prime Minister Liz Truss and her new government. Bank of England strengthen its interference in the UK bond market on Tuesday, extending emergency measures for two days for the second time, as it warned of a “significant risk” to the nation’s financial stability.
Although Russia is responsible for much of the skyrocketing food and energy prices, its economy is growing better than previously expected even in the face of harsh sanctions. international power. The Russian economy is expected to shrink 3.4% this year and 2.3% in 2023, much less than many economists believed earlier this year.
International Monetary Fund officials say the resilience of energy exports has allowed Russia to stimulate its economy and boost its labor market. However, Russia is facing a deep recession and its economic output is much lower than it was before the war.
The impact of Russia’s invasion of Ukraine is at the forefront as policymakers gather in Washington.
Janet L. Yellen, Finance Minister, condemned Russia’s actions during Tuesday’s meeting of finance ministers, who convened to discuss the global food crisis. Russia’s Finance Minister, Anton Siluanov, mostly attended the meeting.
“Putin’s regime and the officials who served it – including those who represented Russia at these meetings – must be held accountable for the enormous human suffering this war has caused.” Yellen said, according to a copy of her remarks provided by a Treasury official.
Yellen called on the Group of 20, which represents the world’s major economies, to increase financial support for countries facing food shortages and said she would support a freeze on payments. debt to countries in need.
The downturn in advanced economies is putting pressure on emerging markets, many of which are already fragile and are already facing mounting debt burdens as they recover from the pandemic. Higher interest rates, rising food costs and reduced demand for exports threaten to push millions into poverty. And low vaccination rates in places like Africa mean the health effects of the pandemic are persistent.
David Malpass, president of the World Bank, told reporters ahead of this week’s meeting: “The poor are hurt the most. “We’re in the midst of a crisis-facing development process.”
The rapid appreciation of the US dollar, the strongest US dollar since the early 2000s, also represents threat to emerging markets. The International Monetary Fund urged policymakers in these countries to “widen the gap” and preserve their foreign currency reserves as financial conditions deteriorate.
As pain piles up in rich and poor nations, policymakers are under increasing pressure to mitigate the fallout, with central banks – including those at the Federal Reserve Federal Reserve – face calls to cut interest rate hikes.
However, the fund warns that doing too little to fight inflation will make the latter fight more costly. It also says that governments should avoid enacting fiscal policies that will make inflation worse.
In its report, the fund acknowledged that its forecasts face significant uncertainty. Russia’s further withdrawal of gas supplies to Europe could depress the continent’s economies, the debt crisis in developing countries could worsen, and the pandemic could flare up again. again.
“Risks to the outlook remain unusually large and have downsides,” the report said.
Jeanna Smialek contribution report.
