The global economy is headed for “stormy waters,” the International Monetary Fund said on Tuesday as it cut its projection for growth next year and warned that high inflation was worsening living conditions.
The United Nations financial agency forecast that the global economy will grow 2.7 percent in 2023, down from a projected 3.2 percent this year and six percent in 2020. The projections were released in the latest edition of its widely watched World Economic Outlook. Top economic officials from around the world are in Washington, D.C. this week for meetings at the IMF and the World Bank.
“Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook,” the IMF said in a summary of the report.
The IMF sees global inflation hitting 8.8 percent for 2022, up from last year’s 4.7 percent, before declining to 6.5 percent next year and 4.1 percent the year after that.
“Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy,” the IMF said.
The gloomy report predicts that there will be contractions next year in economies representing more than a third of global output. The world’s three largest economies—China, the U.S. and the European Union—will grow very slowly. The IMF is projection just one percent growth next year in the U.S. and half that in the European Union. China is projected to grow 4.1 percent next year, above this year’s 3.2 percent but down sharply from last year’s eight percent.
“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the report said.
For economies in emerging markets countries, the strengthening of the dollar as the Federal Reserve raises interest rates poses risk, the IMF warned. Financial conditions have tightened and imports have become more expensive.
“As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments, such as US Treasuries, and pushing the dollar even higher,” the report said.