IMF Slashes Global Growth Forecast for 2023, Warns of Global Recession

IMF Slashes Global Growth Forecast for 2023, Warns of Global Recession
The seal for the International Monetary Fund is seen near the World Bank headquarters in Washington on Jan. 10, 2022. Stefani Reynolds/AFP via Getty Images
Bryan Jung
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The International Monetary Fund cut its global growth forecast for 2023, warning of a potential global recession next year.

The IMF lowered its global growth estimates in its Oct. 11 World Economic Outlook report to 2.7 percent, which is down from its 2.9 percent outlook in July.

The report said that “the slowdown of the global economy has intensified,” calling it “the weakest growth profile since 2001,” besides the Great Recession and the pandemic.

“The worst is yet to come, and for many people 2023 will feel like a recession,” said IMF chief economist Pierre-Olivier Gourinchas.

The IMF’s GDP estimate for 2022 remained steady at 3.2 percent, down from the 6 percent growth seen in 2021.

This comes after similar dire predictions from the United Nations, the World Bank, and many world business leaders.

“The global economy’s slowdown has intensified due to higher-than-expected inflation, a worse-than-expected slowdown in China due to COVID-19 outbreaks and lockdowns, and the impact of Russia’s war in Ukraine,” tweeted the IMF, as major reasons for the pending economic crisis.

Global Recession?

It was reported that over a third of the global economy will witness two consecutive quarters of negative growth next year, which “will feel like a recession.″

“The geopolitical re-alignment of energy supplies in the wake of Russia’s war against Ukraine is broad and permanent,” the report noted.

The price of natural gas has more than quadrupled since 2021, with Russia delivering less than 20 percent of 2021 levels.

Food prices have also been pushed up as a result of the conflict, with the IMF noting the war’s ability to “powerfully destabilize the global economy,” along with the severe energy crisis in Europe.

People shop at a supermarket in Montebello, Calif., on Aug. 23, 2022. U.S. shoppers are facing increasingly high prices on everyday goods and services as inflation continues to surge with high prices for groceries, gasoline, and housing. (Frederic J. Brown/AFP/Getty Images)
People shop at a supermarket in Montebello, Calif., on Aug. 23, 2022. U.S. shoppers are facing increasingly high prices on everyday goods and services as inflation continues to surge with high prices for groceries, gasoline, and housing. Frederic J. Brown/AFP/Getty Images

The world’s four largest regional economies, the United States, the European Union, communist China, and Japan, will continue to slow, as central banks around the world have been raising their interest rates to fight record inflation.

The IMF lowered growth in the United States to 1.6 percent this year, down from its July forecast at 2.3 percent, as gas prices across the country begin to rise again.

It is expected that the U.S. economy will grow slightly at 1 percent in 2023.

The EU, which has been facing a natural gas and energy crisis, due to the war in Ukraine will grow just 0.5 percent in 2023, said the IMF.

The energy crisis, which is weighing heavily on Europe, “is not a transitory shock,” said the IMF, and that “winter 2022 will be challenging for Europe, but winter 2023 will likely be worse.”

China, which is facing a housing market crisis and the resurgence of lockdown mandates that has severely disrupted business operations, will slow to 3.2 percent growth in 2022, from 8.1 last year.

The UN financial agency forecasts China’s growth at 4.4 percent next year, almost half its level in 2021.

Japan’s growth projection for 2022 remained the same at 1.7 percent from July, cited the IMF.

Growth for 2023 was lowered to 1.6 percent, due to rising energy import prices and lower consumption as inflation outpaces wage growth.

Central Banks and Interest Rates

The UN agency noted the tightening of monetary policy across the world to combat inflation and the “powerful appreciation” of the U.S. dollar against other currencies.

Higher U.S. benchmark rates have lured investment away from other countries and strengthened the value of the dollar.

A cashier changes a 50 Euro banknote with U.S. dollars at an exchange counter in Rome, Italy, on July 13, 2022. (Gregorio Borgia/AP Photo)
A cashier changes a 50 Euro banknote with U.S. dollars at an exchange counter in Rome, Italy, on July 13, 2022. Gregorio Borgia/AP Photo

The Federal Reserve has been cracking down hard on historically high inflation in the United States, with aggressive interest rate hikes since March of this year.

Raising rates dramatically has increased the risk of a sharp slowdown and global recession.

It also makes American exports more expensive such as oil and liquified natural gas, leading to higher inflationary pressures.

Maurice Obstfeld, a former IMF chief economist and now a professor at the University of California, Berkeley, told AP, that an overly aggressive Fed could “drive the world economy into an unnecessarily harsh contraction.”

Other world countries were forced to raise their own rates in response while burdening their economies with higher borrowing costs.

The European Central Bank has started to raise its policy rates into positive territory for the first time since 2014.

Meanwhile, the Bank of England expanded its bond buying measures this week to halt instability in the British economy and a unwanted surge in bond yields.

The IMF reported that global inflation would peak in late 2022 at 8.8 percent and that it would “remain elevated for longer than previously expected.”

Global inflation is then predicted to decline to 6.5 percent in 2023 and to 4.1 percent by 2024, according to the forecast.

The IMF suggested that “front-loaded and aggressive monetary tightening” is needed, but that a “large” downturn is not “inevitable,” due to the tight labor markets in the U.S. and the U.K.

It also said that “fiscal policy should not work at cross purposes with monetary authorities’ efforts to quell inflation” in a stinging rebuke of British Prime Minister Liz Truss’ failed series of tax cuts proposals.

The IMF suggested last month, that Truss should “re-evaluate” her government’s fiscal plans.

Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng during a visit to a construction site for a medical innovation campus in Birmingham, on Oct. 4, 2022. (Stefan Rousseau/PA Media)
Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng during a visit to a construction site for a medical innovation campus in Birmingham, on Oct. 4, 2022. Stefan Rousseau/PA Media

Pending Instability in Emerging Economies

“Global financial stability risks have increased with a balance of risk that is skewed to the downside. Markets have been extremely volatile,” said Tobias Adrian, director of monetary and capital departments at the IMF at a press conference on Oct. 11.

He noted that “20 countries are either in default or trading at stress levels” and that global market conditions are significantly worsening in poorer economies.

Adrian said that only 29 percent of banks in emerging markets are able to make the minimum capital requirements, according to the IMF’s global stress tests for financial services institutions.

The IMF and the World Bank are holding their annual meeting later this week, with many economic advisors and officials from around the world set to attend.

The Associated Press contributed to this report.
Bryan Jung
Bryan Jung
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Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
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