More than a third of the global economy is headed for contraction this year or next. (Representative)
Washington:
Global growth is expected to slow further next year, the IMF said on Tuesday, downgrading its forecasts as countries grapple with Russia’s invasion of Ukraine, cost of living and an economic slowdown.
The world economy has suffered several setbacks, with Ukraine at war following the coronavirus outbreak raising food and energy prices, while rising costs and rising interest rates threaten to resonate around the world.
“This year’s shocks will reopen economic wounds that were only partially healed after the pandemic,” said International Monetary Fund economic adviser Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook. “
More than a third of the global economy is headed for contraction this year or next, and the three largest economies – the United States, the European Union and China – will continue to stall, he warned.
“The worst is yet to come and for many people 2023 will feel like a recession,” Gaurynchas said.
In its report, the IMF lowered its 2023 global GDP forecast by 0.2 points to 2.7 percent from July’s expectations.
Its world growth forecast for this year remains unchanged at 3.2 percent.
The IMF said the global growth profile is at its “weakest” since 2001, apart from the global financial crisis and the worst pandemic.
It portends a slowdown for the largest economies, including US GDP contraction in the first half of 2022 and virus lockdowns in China on top of a property market crisis.
laser focus
A major factor behind the slowdown is a change in policy. As central banks try to bring down rising inflation, higher interest rates begin to take the heat away from domestic demand.
In the report Gourinchas said rising price pressures are the most immediate threat to prosperity, adding that central banks are now “laser focused on restoring price stability”.
Global inflation is expected to hit 9.5 per cent this year before falling to 4.1 per cent by 2024.
But falsifying the persistence of inflation could prove detrimental to future macroeconomic stability, he warned, “by severely undermining the hard-earned credibility of central banks.”
While the current challenges do not mean that a major recession is inevitable, the fund also warned that many low-income countries are either in debt or close to a crisis.
Avoiding the wave of sovereign debt crisis requires progress towards debt restructuring for the hardest-hit.
“Time may soon run out,” said Gaurynchus.
recession in america
The IMF has also cut forecasts for the two largest economies, the United States and China.
Because of the unexpected contraction this year, US economic growth is pegged at 1.6 percent this year, 0.7 points lower than the fund’s July forecast.
“The decline in real disposable income is eating into consumer demand, and higher interest rates are taking a significant toll on spending,” the IMF said.
The Federal Reserve is aggressively raising interest rates to cushion rising inflation, which is slowing economic activity. And the central bank has said that further growth is likely.
The recession in the euro area is expected to deepen next year, the IMF said, and growth in China is projected to hit its lowest rate in decades – apart from during the initial coronavirus outbreak.
China’s economy is expected to grow by 3.2 percent this year, slightly below the original estimate.
The fund cautioned that the worsening of China’s asset sector slowdown could spread to the domestic banking sector and weigh on growth.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)