Bloomberg News reports that the International Monetary Fund has warned about the worsening outlook for the economy worldwide, highlighting that measures being taken to manage the highest-ever inflation in four decades might have adverse consequences. Adding to the same, it may also add to the Ukraine war and the slowdown in China.
The IMF has been cutting the forecast for growth globally to 2.7% next year from what was seen as 2.9% in July and 3.8% in January, adding that it forecasts about a 25% probability that growth of the economy will slow down to lower than 2%.
As growth continues to remain fragile, the risk of policy for miscalculation has surged steeply, and markets have been showing signs of stress, as stated by the IMF on Tuesday in the World Economic Outlook. It is also anticipated that about one-third of the economy globally has the risk of contracting with stalled growth in China, the European Union, and the United States.
The effect of the monetary policy tightening of the Federal Reserve will likely be manifested across the globe, with the strength of the dollar versus currencies in the developing and emerging markets, thereby adding to debt pressures and inflation.
Expansion is Weaker
Leaving out the slowdown in 2020, unprecedented due to the coronavirus pandemic, the performance next year will be the weakest that will be seen after 2009 due to the global financial crunch.
According to Pierre-Olivier Gourinchas, the lender’s chief economist, the worst is still not here and yet to come. The IMF is seeing a greater risk from the central banks doing less instead of too much amidst consistent price pressures, an error that might cost them credibility and raise the eventual price to bring them under control.
Bloomberg News reports that as per IMF forecasts, inflation is slated to peak toward the end of the current year with an annual rate of 8.8% and will continue to remain at that point for a longer period in contrast to what was expected earlier, only to slow down to 6.5% next year and 4.1% by 2024.
Global Inflation in 2023
For this year, the IMF saw global growth of 3.2%, which is unchanged since July but dropped by more than a quarter from what was projected in January of a figure of 4.4% before the beginning of the Russian-Ukraine war.
The economy in the euro area will grow by just about 0.5% in 2023, as per the IMF, with the bloc witnessing the sharpest outlook reduction amongst the regions of the world. Starting from Russia, Italy, and Germany will all witness a contraction in their economies.
Although Europe’s energy crisis was due to Russia snapping natural gas deliveries, the continent will face a challenge this winter, and the next winter might be more difficult, as stated by the IMF.
