“We are entering a risky period for the global economy”

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Global growth will slow to 2.8 percent this year compared to 2022 (3.4%), according to the IMF’s economic forecast presented on Tuesday.

“We are entering a risky period where economic growth remains low by historical standards and financial risks are rising, but inflation is not making a definitive return,” said IMF chief economist Pierre-Olivier Gourinchas.

The IMF took a positive look at the fact that the economy was gradually recovering from the Russian occupation of Ukraine, while at the same time overcoming the consequences of the pandemic. Central to this is the decline in “war-related upheavals” in energy and food markets and the end of the corona lockdown in China.

“But as the recent instability in the banking sector has shown us, turbulence is rising below the surface and the situation is fragile,” the report said. The fight against inflation is also much tougher than it was a few months ago. The report sees significant risks jeopardizing the economic recovery.

Things should go up in 2024

In January, the IMF assumed global growth was 2.9 percent – ​​this forecast has now been adjusted slightly downwards by 0.1 percent. But next year things will pick up again – gross domestic product (GDP) will increase by 3 percent.

IMF economists hope the bottom will be reached this year. It is noteworthy that only slow growth of the economy, especially in industrialized countries. The IMF has a slide of 1.3 percent for this year. Things look much better in emerging and developing countries with 3.9 percent.

Last week, the IMF projected 0.8 percent GDP growth for Switzerland in 2023, after a much higher original forecast of 2.2 percent. Next year, the Swiss economy will grow at a faster rate of 1.8 percent, he said.

Industrial countries with very high inflation

Globally, it’s a balancing act between restoring price stability and avoiding a recession, according to the forecast released Tuesday. However, the IMF does not currently assume a global recession.

What is worrying, however, is that inflation has fallen less than originally anticipated. For 2023, the IMF expects inflation to average 7 percent worldwide – 0.4 percentage points more than its January forecast.

It should be 4.9 percent (plus 0.6 percentage points) next year. The IMF expects an inflation rate of 4.7 percent for industrialized countries this year. These values ​​are still far from the 2 percent target.

No uncontrolled wage-price spiral

According to the report, the tight monetary policy of central banks is slowly bearing its fruits. But it is now unlikely that central banks will give up their fight against high consumer prices. Interest rate hikes risk slowing the economy.

And so the IMF paints a “reasonable alternative scenario”: If financial sector stress continues, global economic growth could fall to 2.5 percent this year – the weakest growth since the global recession in 2001, according to the IMF. – with the exception of the onset of the corona epidemic and the financial crisis in 2009. In this scenario, growth in industrialized countries would be less than one percent.

But the IMF also has good news: On the one hand, there is currently no sign of an uncontrolled wage-price spiral – namely, the effect of excessive wage growth in response to high inflation pushing prices higher.

There is also “promising hope on the horizon” that turbulence in the banking sector could help slow demand, thereby having a similar effect as the interest rate rises. This can help lower the inflation rate. (pbe/SDA)

Source :Blick