IMF Cuts 2023 Global Growth, Warns Major Economies To Stall

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia's invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

In its report, the IMF trimmed its 2023 global GDP growth forecast to 2.7 percent, 0.2 point down from July expectations.

The global growth profile is its weakest since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

The world economy is expected to avert recession, but there is about a one-in-four chance that growth could slow to 2 percent or below, Gourinchas warned Tuesday.

Laser focus

Growing price pressures are the most immediate threat to prosperity, said the IMF's report, adding that central banks are now "laser-focused on restoring price stability".

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, Gourinchas warned, "by gravely undermining the hard-won credibility of central banks."

This is because banks were starting from a point of historically-low rates as countries emerged from the pandemic.

While the G20 has agreed on a "common framework" for debt restructuring for the poorest countries, only three have qualified and "more progress is needed," Gourinchas told reporters.

Slowdown in major economies

US economic growth for this year is now pegged at 1.6 percent, 0.7 point below the fund's July forecast, due to an "unexpected real GDP contraction in the second quarter," the IMF said.

The Fed has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

"I don't think there will be a recession," he told CNN. "If it is, it'll be a very slight recession. That is, we’ll move down slightly."

The fund cautioned that a worsening of China's property sector slump could spill over to the domestic banking sector and weigh on growth.

The energy crisis provoked by Russia's invasion "is not a transitory shock," the IMF said, describing the global shift in energy trade as "broad and permanent."

October 13, 2022