The IMF has warned of a ‘hard landing’ for the global economy if persistent and troublesome inflation keeps interest rates higher and amplifies financial risks.
In its latest global economic outlook released on Tuesday, the fund said its overall economic forecast remained largely unchanged from January, but signs of a recovery along with falling global energy and food prices masked a bleak reality. I emphasized that it was hidden.
IMF Chief Economist Pierre-Olivier Gourinschat said: . . turbulence is increasing and the situation is very fragile. ”
“Inflation is much stronger than expected a few months ago,” he said. “What is more worrisome is the sharp [monetary] The policy tightening over the past 12 months is starting to have serious side effects for the financial sector. ”
In its biannual full forecast released on Tuesday, the IMF said the turmoil in the UK government bond market last fall and last month’s US bank turmoil showed “significant vulnerabilities”. [that] It exists in both banks and non-bank financial institutions.”
“The odds of a hard landing have increased sharply and risks to the outlook are skewed significantly to the downside,” the IMF said.
Grinsha told the Financial Times that while the banking system was much more resilient than it was during the 2008 financial crisis, policymakers had to “think about what could go wrong.”
“We can all remember the long time it took for an individual institution to fail, be it Bear Stearns or Countrywide,” he said, referring to an institution that failed more than a decade ago. “This was treated like an isolated incident each time, until it wasn’t.”
New IMF forecasts show a 25% chance of global annual growth falling below 2% in 2023, double the usual risk. The global economy has grown so slowly in the five calendar years since 1970.
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In the event of a severe financial shock (one that the IMF has placed a 15% risk on), the IMF said it would likely cause global growth to fall below population growth, leading to a global recession.
The IMF’s core forecast, unchanged, is that the global economy is expected to grow by 2.8% in 2023, rising to 3% in 2024, and remaining roughly at that level until around 2028.
IMF Managing Director Kristalina Georieva said last week that this was the weakest medium-term outlook for the global economy since 1990.
Gourinchas told the FT that the Fund is forecasting “overheated” growth in China and a return to more normal rates in other countries. The IMF also assumes global productivity will decline and economies will suffer fragmentation amid the “scars” of the coronavirus pandemic and geopolitical tensions.
US economic forecasts are higher than in January, with the IMF now expecting growth of 1.6% in 2023 and 1.1% in 2024. 1% growth in the following year.
The Eurozone is expected to grow more slowly this year, at 0.8%, before recovering to 1.4% in 2024 as member states deal with last year’s higher energy prices.
The IMF’s 5.2% growth forecast for China in 2023 is in line with the Beijing government’s target, but the IMF expects it to slow to 4.5% in 2024.
The IMF urged the central bank to continue its efforts to bring down inflation and helped the government by removing some of the fiscal support provided in recent years to deal with Covid-19 and the energy crisis. I asked you to
As long as financial markets remain relatively stable, central banks should do all they can to beat inflation, the fund said. Gouringsha warned that price pressure could persist further, leading to a “hard landing scenario”.
“There are concerns that the tightening of the system is insufficient at the moment and that more will be needed,” he said. “That would certainly increase the chances of further declines in output compared to our projections.”
But the credit crunch that some economists are predicting in the wake of last month’s US banking turmoil could act as a disinflationary force, he said.
“So long as it is orderly, some of this lending cut could actually be beneficial in terms of lowering inflation and could replace further rate hikes.”
U.S. Treasury Secretary Janet Yellen was more optimistic about the outlook, trying to assuage fears of a “hard landing.”
After the banking sector turmoil, she said, “we have seen no evidence at this stage to suggest a credit crunch,” and said the U.S. economy remained “very strong,” with “solid job creation continuing.” “Inflation is slowly coming down,” he said. [and] firm private consumption.”
“I’m not going to be too negative about the global economy,” Yellen told reporters. “I think the outlook is pretty bright.”
Additional reporting by James Polity
