IMF Reduces Expectations of Global Economic Growth for 2023, Alarms for Recession

Recently the International Monetary Fund came up with a crucial insight which is sufficient to put the market into distress. The IMF expected a slump in the growth of the global economy for the upcoming year.

On Tuesday, 11th October, the IMF decreased the prediction for the global economy for the year 2023. The financial agency even slated it adding a warning that ‘the worst is yet to come’ and the upcoming year will act as a recession for most people.

The agency in its recent prediction of global economic growth for the next year expected to stay around 2.7%. Additionally there will be a probability of about 25% that the growth could even slide less than 2%.

From 1970, there were only five instances when the global economic growth went below 2%.

In its last farecast in July, IMF has predicted the economic growth 2.9% which has now decreased by 0.2% to 2.7%. The forecast for the year 2022 was also decreased in July from its earlier prediction of 3.6% in April, 2022. However, in July it estimated the growth for the ongoing year 3.2% and this remained the same in its recent forecast.

There could be many reasons playing crucial roles behind decreasing the pace of the global economy. Most prominent among them are war between Russia and Ukraine, consistently increasing inflation and economic slowdown in China given the strict lockdown following the zero-Covid policy.

CNN Business reported that chief economist at the IMF, Pierre-Olivier Gourinchas said the global economy is up to face a contraction of more than one third either in 2022 or 2023. The reason he stated is the continued struggle of three largest world economies that are the United States, the European Union and China.

The IMF considered the current global economy growth profile among the weakest since 2001. This remains just after the financial crisis of 2008 and economic slowdown during the Covid-19 pandemic.

Soaring Inflation Despite Efforts

Along with the economic growth, the financial agency also showed its concerns for global inflation which is also on rise and expected to reach its peak in the later part of this year. The IMF also believes it could stay longer despite the aggressive efforts of central banks around the world.

The inflation which was around 4.7% in 2021 expected to reach 8.8% for this year. However it is expected to drop to 6.5% in 2023 and continue to drop to 4.1% the next year.

Tightening of monetary policies has been the go to option for Central Banks which acts as a double edged sword for the economy. The IMF’s take on tightening is that it acts as the most immediate threat to the current as well as future prosperity.