The International Monetary Fund (IMF) has cut its global growth forecast for 2023, saying that the “worst is yet to come” economically.
“Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” the IMF’s forecast predicted. “In short, the worst is yet to come and, for many people, 2023 will feel like a recession.”
The three largest economies, China, the United States, and the Eurozone will continue to stall next year, according to IMF predictions. They expect the economy in the United States to grow only 1% in 2023, while the Eurozone will slow to 0.5% growth. China will do relatively well, with 4.4% growth, but that is still a drop from their previous predictions. China’s 2000 to 2021 average growth was over 8%. In China, the IMF blames a weakening real estate market and continued COVID-19 lockdowns.
The IMF also blames rapidly rising prices, particularly in food and energy. That effect is especially pronounced in the Eurozone due to the situation in Ukraine. They expect it will cause “serious” hardships, especially for the poor. But they also said prices are rising in other industries as well. The IMF expects global inflation to peak at 9.5% before slowing to a still high 4.1% by 2024.
For emerging markets, the IMF sees the strong dollar as a driving cause, a trend that they think may continue as investors look for stable assets if the global financial market continues to deteriorate. They suggest that monetary leaders in those countries increase their foreign currency holdings and save them for “when financial conditions really worsen.”
“As the global economy is headed for stormy waters, now is the time for emerging market policymakers to batten down the hatches,” the IMF suggests.
The IMF also looked at other possibilities, outside of its main forecast. If certain events unfold differently than the IMF expects, the global economic situation could be far worse. The IMF estimates that there is a 25% chance that global growth could be lower than the historically low 2% and a 10 to 15% chance that it will go as low as 1.1%.
The US Federal Reserve and other central banks have been attempting to fight inflation by raising interest rates. The IMF cautions that tightening too much could cause the global economy to stagnate but that not doing it enough could cause inflation to continue to rise, which will make it more difficult to rein in later.
They also caution against having monetary and fiscal policies that are at odds with each other. That would mean lessening spending as well as raising interest rates. They believe that is necessary to stop the cost-of-living crisis that is continuing to worsen.