The International Monetary Fund has published latest economic forecasts and warns that it’s going to be difficult for policy makers to bring inflation down while maintaining the pace of growth.
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The International Monetary Fund released its weakest forecast for global economic growth over the medium term in greater than 30 years on Tuesday.
The Washington-based institution said five years from now, global growth is projected to be around 3% – the bottom medium-term forecast within the IMF’s World Economic Outlook report since 1990.
“The worldwide economy is currently not expected to return to the expansion rate that prevailed before the pandemic over the medium term,” the fund said in its latest economic outlook.
The weaker growth outlook is as a consequence of the progress of economies similar to China and South Korea in raising living standards, the IMF said, in addition to slower global labor force growth and geopolitical fragmentation similar to Brexit and the Russian invasion of Ukraine.
These forces are actually overlapping and interacting with latest financial stability concerns.
Within the short term, nevertheless, the IMF expects global growth of two.8% this 12 months and three% in 2024, barely below the fund’s estimate released in January. The brand new estimate is down 0.1 percentage points for each this and next 12 months.
“The anemic outlook reflects the restrictive policies needed to bring down inflation, the consequences of the recent deterioration in financial conditions, the continued war in Ukraine and increasing geoeconomic fragmentation,” the IMF wrote in the identical report.
Taking a look at some regional breakdowns, the IMF predicts that the US economy will grow by 1.6% this 12 months and the eurozone by 0.8%. Nonetheless, the UK is shrinking by 0.3%.
In keeping with the IMF, China’s GDP is predicted to grow by 5.2% in 2023 and India’s by 5.9%. The Russian economy, which shrank by greater than 2% in 2022, will grow by 0.7% this 12 months.
“Major forces affecting the world in 2022 – restrictive monetary policy by central banks to mitigate inflation, reduced fiscal buffers to soak up shocks in a context of historically high debt levels, commodity price spikes and geoeconomic fragmentation related to Russia’s war in Ukraine, and China’s reopening of the economy appears more likely to hold until 2023. But these forces are actually being imposed and interacting with latest financial stability concerns,” the IMF warned.
Banking turmoil
The IMF said its baseline forecast “assumes that recent tensions within the financial sector have been brought under control”. It comes after several banks failed in March, causing volatility in global markets.
Pressures on the banking sector have eased in recent weeks, but have worsened the general economic picture within the eyes of the IMF.
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“Tensions within the financial sector could intensify and the knock-on effects could intensify, weakening the actual economy by sharply deteriorating financing conditions and forcing central banks to reconsider their policy paths,” the fund said.
Bank failures make clear the potential consequences of hawkish monetary policy in lots of major economies. Higher rates of interest, pushed up by central banks struggling to bring down stubbornly high inflation, hurt businesses and national governments with high levels of debt.
“A tough landing – especially for advanced economies – has change into a much greater risk. Policymakers may face difficult trade-offs to bring down sticky inflation and sustain growth while preserving financial stability, the IMF said.
The institution expects global headline inflation to fall from 8.7% in 2022 to 7% this 12 months as energy prices decline. Nonetheless, core inflation, which excludes variable food and energy costs, is predicted to take longer to fall.
Generally, the IMF doesn’t expect headline inflation to return to focus on levels before 2025.