IMF cuts global growth outlook for 2023 amid adverse scenario

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 under pressure from the war in Ukraine, high energy prices, high food prices and high interest rates, warning that the situation could worsen significantly next year.

The Fund said analyzes for its new World Economic Outlook (WEO) report show a third of global GDP is likely to contract next year, marking a gloomy start to the first annual face-to-face meetings of the IMF and World Bank in three years.

“The three largest economies, the United States, China and the euro area, will remain stagnant”, said the chief economist of the IMF, Pierre-Olivier Gourinchas, in a statement. “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”.

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The IMF mentioned that global GDP growth next year will slow to 2.7%, compared with a forecast of 2.9% in July, as higher interest rates slow down the economy and the real estate sector in the United States.

The agency maintained its growth forecast for 2022 at 3.2%, reflecting better-than-expected production in Europe but weaker performance in the United States, after global growth of 6% in 2021.

US Outlook

US growth this year will be a scant 1.6%, down 0.7 percentage point from July, which is an unexpected contraction in GDP in the second quarter. The IMF kept its expansion forecast for the world’s largest economy unchanged at 1% during 2023.

He also noted that his outlook is subject to a delicate balancing act by central banks to fight inflation without excessive monetary tightening, which could push the world economy into aunnecessarily severe recession” and cause disruption to financial markets and hardship for developing countries.

However, he pointed squarely at controlling inflation as the highest priority.

“The hard-earned credibility of central banks could be undermined if they once again misappraise the stubborn persistence of inflationGourinchas said. “This would be far more detrimental to future macroeconomic stability”.

The Fund forecast that headline consumer price inflation would peak at 9.5% in the third quarter of 2022 and decline to 4.7% in the fourth quarter of 2023.

A “plausible mix of shocks,” including a 30% rise in oil prices from current levels, could darken the picture considerably, the IMF said, pushing global growth to just 1% next year, a level associated with the general decline in real income.

With information from Reuters