International Monetary Fund warns of tough 2023 as recession looms

CNN Business

The International Monetary Fund has downgraded its rating again. forecast for the global economy with a clear warning: “The worst is yet to come, and for many people, 2023 will look like a recession.”

The agency said on Tuesday it expects global growth to slump to 2.7% next year, with a 25% chance it could fall below 2%. This compares to projected growth of 3.2% this year.

The figure for next year is 0.2 percentage points lower than the IMF Outlook for July, as Russia’s war in Ukraine, high inflation and a slowdown in China weigh on activity.

“More than a third of the global economy will contract this year or next, while the three largest economies – the United States, the European Union and China – will continue to stagnate,” Pierre-Olivier said. Gourinchas, director of the IMF. chief economist.

The outlook for the world economy described by the IMF is the third weakest since 2001, behind only the 2008 financial crisis and the worst phase of the coronavirus pandemic. Global growth has only fallen below 2% five times since 1970.

The IMF estimates that global inflation will peak at the end of this year, but “will remain high for longer than expected”, even as central banks strive to bring it under control.

Global inflation is expected to rise from 4.7% in 2021 to 8.8% this year. It is then expected to fall back to 6.5% in 2023 and to 4.1% by 2024.

The main central banks are targeting inflation close to 2% and have been rising interest rates in order to limit price increases. But the campaign also increases the risks to the economy.

If they push too hard, it could exacerbate a global slowdown, while tapering efforts could allow inflation – which the IMF has called “the most immediate threat to current and future prosperity” – to escalate. root.

“Central banks around the world are now focused on restoring price stability, and the pace of tightening has picked up sharply,” Gourinchas wrote. “There are risks of under-tightening and over-tightening.”

Last week, the United Nations Trade Development Conference warned that a tightening of monetary policy could inflict greater damage globally than the financial crisis in 2008 and the Covid-19 shock in 2020.

The IMF said higher rates, while necessary, create instability, especially for highly indebted emerging markets.

“As the global economy heads into turbulent waters, financial turmoil could well erupt, prompting investors to seek protection from safe-haven investments, such as US Treasuries, and pushing the dollar even higher,” did he declare. “Now is the time for emerging market policymakers to batten down the hatches.”

The latest forecasts included notable downward revisions for major economies. The United States is now expected to grow just 1.6% this year and is only expected to grow 1% in 2023.

Growth in China has also been revised down to 3.2% in 2022 and 4.4% in 2023. The IMF has denounced the lingering effects of attempts to contain the spread of the coronavirus and the rapid weakening of the real estate sector , which he says accounts for about a fifth of the country’s economic activity.

“Given the size of China’s economy and its importance to global supply chains, this will weigh heavily on global trade and activity,” the IMF said.

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