The International Monetary Fund expects 2023 to feel like a recession for millions of people across the world and projects that global GDP would drop to 2.7% next year, 0.2 percentage points below its July prediction.
In line with warnings from the World Bank, the UN, and numerous CEOs worldwide, the research stated, “The worst is yet to come, and for many people 2023 will feel like a recession.” The IMF stated in its World Economic Outlook, which was released on Tuesday, that this is "the weakest growth profile since 2001," excluding the global financial crisis and the height of the Covid-19 outbreak. Its projected GDP for this year was unchanged at 3.2%, which was lower than the 6% predicted in 2021.
The three largest economies—the United States, the European Union, and China—will continue to slow, while more than a third of the global economy will see two consecutive quarters of negative growth, according to the report.
As per the reports obtained by CNBC, Pierre-Olivier Gourinchas, the IMF’s chief economist conveyed, “Next year is going to feel painful.” Furthermore, he conveyed “There’s going to be a lot of slowdown and economic pain.”
Three significant developments that are now impeding growth were identified by the IMF in its report: the invasion of Ukraine by Russia, the cost-of-living problem, and China's economic slowdown. They combine to provide a "volatile" period in terms of economy, geopolitics, and the environment. According to the report, the conflict in Ukraine continues to "powerfully undermine the global economy," with its effects leading to a "serious" energy crisis in Europe as well as devastation in Ukraine. Given that Russia is currently delivering less than 20% of what it did in 2021, the price of natural gas has more than doubled since 2021. The violence has caused food costs to increase as well.
The IMF forecasts that global inflation would reach its peak in late 2022 and "stay elevated for longer than originally predicted," rising from 4.7% in 2021 to 8.8% and the IMF predicts that global inflation would likely drop to 6.5% in 2023 and 4.1% in 2024. The agency observed the "strong appreciation" of the U.S. dollar relative to other currencies as well as the tightening of monetary policy against inflation around the world.
However, Lockdowns brought on by China's "zero-Covid policy" continue to hurt the country's economy. Around one-fifth of China's GDP is made up of the property sector, and as the market weakens, the effects are being felt all over the world.
In its Global Financial Stability Report, which was released immediately after its World Economic Forecast, the IMF also mentioned a "deteriorated" financial outlook. According to the assessment, "the global environment is fragile with storm clouds on the horizon." The research stated that the shocks of 2022 will "re-open economic wounds that were only partially healed following the epidemic" for international markets and developing nations. Last month, the IMF harshly criticised the UK's mini-budget and reiterated a more general caution about untargeted fiscal support without particularly identifying the UK.
Axel Van Trotsenburg, the managing director of operations for the World Bank, reiterated the view in both reports when delivering a speech at the 2022 Annual Meetings of the International Monetary Fund and the World Bank Group.
It was noted that poorer people frequently spend more on food, heating, and fuel than wealthier households do; all of which have suffered sharp price increases as a result of restrictions on grain and energy exports during the invasion of Ukraine. Countries in Europe that rely on Russian gas are particularly hard struck. For instance, it is currently expected that the German economy will shrink in 2019. Simultaneously, Russia's economy is anticipated to have the largest decline of all the countries included in the estimates, a contraction of 2.3%, in 2019.
Besides, Retail inflation in India has been consistently hovering around record highs of 7% for eight consecutive months, far exceeding the Reserve Bank of India's tolerance range of 4-6%. This trend has been largely driven by higher food prices as well as pressure from rising global oil and commodity prices. In its most recent policy meeting, the RBI maintained its forecast for inflation at 6.7% for the current fiscal year.
The IMF further issued a warning that monetary policy might not take the proper course to lower inflation. It was clarified, however, that in order to prevent inflation—which would de-anchor as a result of people and companies basing their wage and price expectations on their recent inflation experience—aggressive and front-loaded monetary tightening is essential.
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