Major Economies May Face Slow Growth in 2023, According to IMF

In news that came as a major shock to world markets, the International Monetary Fund (IMF) on Tuesday, has cut down its global growth forecast for 2023. As per the prediction, the global GDP growth will diminish to 2.7% next year.

Last July, the IMF had predicted a growth rate of 2.9%. The reasons attributed to the downward revision in growth rates are the higher interest rates that have adversely affected the US economy, the rising gas prices that have embroiled Europe, and China continuing to struggle with COVID-19-induced lockdowns and a weakening property sector.

The IMF also warned that a multitude of factors such as inflation, energy, and food crises that developed as a result of war and alarmingly high-interest rates were driving the world to the brink of recession and posing major threats to financial market stability.

These reports were released at the first in-person IMF and World Bank annual meetings that were held in the last 3 years. 

While announcing its revised global growth forecasts for 2023, the IMF in its World Economic Outlook stated that countries that contribute to a third of world output could be affected by the recession in the coming year.

As per the statement by Pierre-Olivier Gourinchas, IMF’s chief economist, the three biggest economies, the United States, China, and the Euro area will continue to witness stalled growth.

Gourinchas concluded his statement by mentioning that the worst is yet to happen and for many people, 2023 will be a feeling similar to a recession. 

However, IMF retained its 2022 growth forecast at 3.2%, citing a higher-than-expected output in Europe, but a bleak performance in the United States, posting a 6.0% global growth last year due to the fall in COVID-19 pandemic cases.

An important forecast about European economies is that they will fall into a “technical recession” in 2023. These economies include Italy and Germany as energy prices are on an upward spiral and shortages adversely affect output.

The IMF also downgraded China’s growth outlooks as the country continues to face the heat of COVID-19 imposed lockdowns and a weakening property sector, where a further downturn would cause a decline in growth.

IMF, in its Global Financial Stability Report also added that the increasing economic pressures, combined with tightening liquidity, unabating inflation, and looming financial vulnerabilities are aggravating the threats of disorderly asset repricings and financial market turmoil.

Tobias Adrian, the IMF’s monetary and capital markets director, while speaking in an interview with Reuters said that it is difficult to recall a period where uncertainty was so high. He went on to add that it’s been decades since we have come across so much conflict across the globe simultaneously with inflation at such peak levels.

The IMF also urged the central banks to continue their battle against inflation in spite of the distress caused by monetary tightening and the spike in the US dollar to the highest rate in the last two decades, the two major reasons behind the recent spell of volatility in financial markets. It went on to add that the central bankers have to perform a delicate balancing act to combat inflation with no excessive tightening.

Such a step could drive the global economy into an unnecessarily deep recession and impose economic pain on emerging markets that are currently witnessing a steep fall in their currencies against the dollar.

One more forecast from the IMF is that the global headline consumer price inflation would touch the peak of 9.5% in the third quarter of 2022. It would also drop to 4.7% by the fourth quarter of 2023.