May 20, 2024


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The International Monetary Fund warns that 'the worst is yet to come' for the global economy

The International Monetary Fund warns that ‘the worst is yet to come’ for the global economy

The International Monetary Fund said on Tuesday the global economy was heading for “storm waters” as it cut its global growth forecast for next year and warned of a severe global recession if policymakers misbehave in the fight against inflation.

The grim assessment is detailed in the closely watched fund World Economic Outlookwhich was published as the world’s top economic officials traveled to Washington to attend the annual meetings of the World Bank and the International Monetary Fund

The rally comes at a difficult time, as ongoing supply chain disruptions and the Russian war in Ukraine have sent food and energy prices soaring over the past year, forcing central bank governors to raise interest rates sharply to cool their economies.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the IMF report said.

The International Monetary Fund maintained its latest forecast that the global economy will grow by 3.2 percent this year, but now expects it to slow to 2.7 percent in 2023, slightly lower than its previous estimate. But at the start of the year, the International Monetary Fund forecast much stronger global growth of 4.4 percent in 2022 and 3.8 percent in 2023, highlighting how the outlook has worsened in recent months.

Inflation is expected to peak later this year and fall from 8.8 percent in 2022 to 6.5 percent in 2023.

“Risks are piling up,” said Pierre-Olivier Gornchas, chief economist at the International Monetary Fund, in an interview as he described the global economy as weak. “We expect about a third of the global economy to be in a technical recession.”

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The International Monetary Fund defines a “technical recession” as an economy that has contracted for two consecutive quarters.

American companies and Wall Street are already preparing for deflation. Jamie Dimon, CEO of JPMorgan Chase, He told CNBC On Monday, the US was likely to be “in recession six to nine months from now”.

The IMF report detailed how the economies of the United States, the eurozone and China are in various states of slowdown, causing ripple effects around the world.

In the United States, inflation and rising interest rates reduce the purchasing power of consumers and activity in the housing sector slows as mortgage rates rise. Europe has been heavily dependent on Russia for energy and faces sharp increases in oil and gas prices with additional sanctions coming into effect later this year, just as the weather turns colder. The ongoing lockdowns in China to prevent the spread of the coronavirus continue to be a burden on its economy.

Despite coordinated international sanctions targeting Russia, its economy is holding up better than previously expected. It is expected to contract by 3.4 percent this year and 2.3 percent in 2023. IMF officials attributed this to the flexibility of its energy exports, which allowed Russia to stimulate its economy and support its labor market. However, Russia is facing a deep recession and its economic output is much lower than it was before the war.

“The war and associated sanctions have had a huge impact on the Russian economy,” said Petya Koiva-Brooks, deputy director of research at the International Monetary Fund.

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The impact of Russia’s invasion of Ukraine has been a top concern for Washington policymakers.

Treasury Secretary Janet L. Yellen condemned Russia’s actions on Tuesday during a meeting of finance ministers who met to discuss the global food crisis. Russian Finance Minister Anton Siluanov attended the meeting virtually.

“The Putin regime and the officials who serve it — including those who represent Russia at these gatherings — bear responsibility for the massive human suffering this war has caused,” Yellen said, according to a transcript of her remarks provided by a Treasury official.

Ms. Yellen called on the G20 to increase financial assistance to countries facing food shortages and said she would support a debt freeze for countries in need of debt relief.

The slowdown in advanced economies is putting pressure on emerging markets, many of which have been Already fragile They face high debt burdens as they emerge from the pandemic. Rising interest rates, rising food costs, and declining demand for exports threaten to push millions of people into poverty. And low vaccination rates in places like Africa mean the health effects of the pandemic are continuing.

“The poor are hardest hit,” World Bank President David Malpass told reporters before meetings with the International Monetary Fund. “We are in the midst of a development facing a crisis.”

With pain accumulating in rich and poor countries alike, policymakers are under mounting pressure to mitigate the fallout, with central bankers – including the Federal Reserve – Facing calls to cut interest rate increases.

However, the International Monetary Fund warned that doing a little effort to combat inflation would make the fight more costly later. He also said that governments should avoid enacting fiscal policies that would make inflation worse.

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The International Monetary Fund acknowledged in its report that its outlook faces a great deal of uncertainty. Stopping Russian gas supplies to Europe may deteriorate their economies, debt crises in developing countries may worsen and the epidemic may return again. Global output may fall below 2 percent next year.

“The risks to the outlook remain unusually high and to the downside,” the report said.