IMF dims outlook for 2023 global economy amid Ukraine war

IMF dims outlook for 2023 global economy amid Ukraine war

The International Monetary Fund is downgrading its outlook for the world economy for 2023, citing a long list of threats that include Russia’s war against Ukraine, chronic inflationary pressures, penalizing interest rates and the global pandemic. long-term consequences.

The 190-nation lending agency predicted on Tuesday that the global economy would grow by just 2.7 percent next year, up from 2.9 percent projected in July. The IMF left its forecast for international growth unchanged this year at “a modest 3.2 percent, a sharp decline from last year’s 6 percent expansion.

The bleak forecast was no surprise.

IMF Managing Director Kristalina Georgieva warned against the grim backdrop of this week’s fall meetings of the IMF and the World Bank in Washington that “the risks of a recession are rising” around the world and the global economy is facing a crisis. period of historical fragility. ,

Also read: Geeta Gopinath to be IMF’s first deputy managing director by early 2022

In its latest projections, the IMF slashed its outlook for growth in the United States to 1.6 percent this year, down from its July forecast of 2.3 percent.

It expects a modest 1 percent growth in the US next year.

The fund estimates that China’s economy will grow by just 3.2 percent this year, up from 8.1 percent last year.

Beijing has instituted a strict zero-COVID policy and cracked down on excessive real estate lending, disrupting business activity. China’s growth is projected to reach 4.4 percent next year, which is still weak by Chinese standards.

In the IMF’s view, the collective economy of the 19 European countries that share the euro currency, hit by extremely high energy prices due to Russia’s attack on Ukraine and Western sanctions against Moscow, will grow by just 0.5 percent in 2023.

The world economy has faced a wild ride since the COVID-19 hit in early 2020. First, the pandemic and the lockdown it caused brought the world economy to a standstill in the spring of 2020.

Then, huge breaches of engineered government spending and ultra-low lending rates by the Federal Reserve and other central banks fueled an unexpectedly strong and swift recovery from the pandemic slowdown.

But the incentive came at a high price.

Factories, ports and freight yards were overwhelmed by powerful consumer demand, especially for goods manufactured in the United States, resulting in delays, shortages and high prices.

(The IMF expects worldwide consumer prices to rise 8.8 percent this year, up from 4.7 percent in 2021.)

In response, the Fed and other central banks have reversed course and started raising rates dramatically, threatening a sharp downturn and a possible recession.

The Fed has raised its benchmark short-term rate five times this year.

Higher rates in the United States have attracted investment from other countries and strengthened the value of the dollar against other currencies.

Outside the United States, higher dollar imports that are sold in US currency, including oil, are more expensive and therefore increase global inflationary pressures.

It forces foreign countries to raise their rates “and burden their economies with high borrowing costs” to protect their currencies.

Maurice Obstfeld, a former IMF chief economist who now teaches at the University of California, Berkeley, has warned that an overly aggressive Fed “could drive the world economy into an unnecessarily harsh contraction.”

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