IMF predicts very painful prospects for the global economy

China's zero-Cavid policy and the fragile housing market, the need to increase interest rates to control inflation in advanced economies, and higher energy and food prices after the Russian invasion of Ukraine will reduce global economic growth from 3.2 percent to 2022 per cent next year, the fund predicted.

An increase forecast for 2023 is the lowest one to be published The IMF since 2001, in addition to years of coronary pandemic and after the global financial crisis.

Fund economists judged that there is 25 percent chance that the world economy would perform worse than its basic forecast, so that growth would fall below 2 percent.

In an interview with the Financial Times, Pierre Olivier Gourinchas, IMF chief economist, said there was up to 15 percent chance of global growth falling below 1 percent. This level is likely to meet the threshold of a recession and it would be “very, very painful for many people”.

“We are not yet in crisis, but things are really not looking good”, he said, adding that the year 2023 would be the darkest “” for the global economy.

Financial unrest, caused by an active shift in dollars, threaten to further complicate the economic situation.

“While the global economy is heading towards stormy waters, financial problems could erupt, prompting investors to seek protection in safe investments, such as US treasury bonds, and pushing the dollar even higher”, Gourinchas added in the statement accompanying the report.

The Fund predicts that inflation in developed economies will reach 7.2 per cent this year and 4.4 per cent next year, both higher than 1 percentage point than previous April projections for 1923. For developing economies, rising consumer prices will reach a peak of nearly 10 percent this year before it is eased to 8.1 percent in 2023.

You have central banks. This is their job, this is their mandate [and] their entire reputation is at risk”, Gourinchas said. The Fund said monetary authorities should keep pace “instead of repeating the mistakes of the 1970s, when most monetary policymakers had no nerve to continue increasing interest rates when their economies slowed down or stalled.

The IMF acknowledged there was a chance to tighten too much monetary policy, but it said the risks of this austerity were not serious enough to allow inflation to become a daily phenomenon.

For the US Federal Reserve in particular, Gourinchas warned it was too early for it to withdraw from its aggressive campaign to tighten monetary policy.

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