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The IMF concerned about global economy negative assessment of the future prospects of the global economy have come to fore by no less a personage than the Managing Director of IMF. The IMF concerned about global economy trimmed its 2023 global GDP growth forecast to 2.7 per cent, 0.2 points down from July expectations though its world growth forecast for this year remains unchanged at 3.2 per cent. The IMF added that the global growth profile is its weakest since 2001 apart from during the global financial crisis and the worst of the pandemic. Kristalina Georgieva has forecast that 2023 would be a tough year for global economy because the primary instruments of global growth, America, Europe and China, are showing economic weakness and such weakness will directly and negatively affect the prospects of global economy. This is a seriously dampening feature for economic managers the world over who have taken due cognizance of the IMF forecast and now are reportedly devising ways and means to overcome difficulties in this respect. The Managing Director of The IMF concerned about global economy negative assessment of the future prospects of the global economy have come to fore by no less a personage did not mince her words and stated that 2023 may prove to be a tougher year to negotiate than 2022 as the economic weaknesses will magnify with the passage of time. In this context it is mentioned that the shocks of 2023 will re-open economic wounds that were only partially healed post-pandemic. The worrying aspect is that worst is yet to come and the future economic situation may feel like recession.
The head of IMF has reaffirmed the slowing down of global economy as earlier and that her organisation had cut its outlook for global economic growth in 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high interest rates engineered by central banks like the US Federal Reserve aimed at bringing those price pressures to heel. Last year, in the most aggressive policy tightening since the early 1980s, the Fed lifted its benchmark policy rate from near zero in March to the current range of 4.25 per cent to 4.50 per cent and Fed officials last month projected it will breach the 5 per cent mark in 2023, a level not seen since 2007. US economic growth for this year is now pegged at 1.6 per cent, 0.7 points below the IMF’s July forecast, due to an unexpected real GDP contraction in the second quarter. It was added that declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending. It was mentioned that the US job market will be a central focus for Fed officials who would like to see demand for labour slacken to help undercut price pressures. The first week of the New Year brings a raft of key data on the employment front, including Friday’s monthly nonfarm payrolls report which is expected to show the US economy minted another 200,000 jobs in December and the jobless rate remained at 3.7 per cent that is near the lowest since the 1960s.
The IMF then mentioned that China has scrapped its zero-Covid policy and embarked on a chaotic reopening of its economy though consumers there remain wary as Coronavirus cases surge. For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth.
Moreover, mushrooming of expected Covid infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth. In the forecast released in October last year the IMF pegged Chinese gross domestic product growth last year at 3.2 per cent rated on par with the fund’s global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4 per cent while global activity slowed further. China’s economy is expected to grow at 3.2 per cent this year that is its lowest rate in decades, apart from the initial Coronavirus outbreak. The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh heavily on growth. It is however suggested that another cut to both the China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos.
The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the Coronavirus outbreak while soaring costs and rising interest rates threaten to reverberate around the globe. A key factor behind the slowdown is a shift in policy as central banks try to bring down soaring inflation with higher interest rates starting to take the heat out of domestic demand. Growing price pressures are the most immediate threat to prosperity and that central banks are now laser-focused on restoring price stability. Global inflation is expected to peak at 9.5 per cent this year before dropping to 4.1 per cent by 2024. Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability by gravely undermining the hard-won credibility of central banks. IMF also projected that a slowdown in the Euro area is also expected to deepen next year with the German and Italian economies tumbling into recession due to their exposure to Russian gas cuts. In this context the IMF pointed out that the energy crisis provoked by Russia’s invasion of Ukraine is not a transitory shock describing the global shift in energy trade as broad and permanent. It warned that winter last year was challenging for Europe while winter 2023 will likely be worse.
MD IMF stressed that the outlook remains extremely uncertain warning that the poorest will be hit the hardest as the risk of social instability was also increasing due to food and energy prices rising. After a decade of low inflation, prices worldwide have surged amid strong demand for goods that outstripped supply as economies began to return to normal, but the Russian invasion of Ukraine and the sanctions imposed on Moscow pushed fuel and food prices up sharply. Inflation also has complicated policy making: major central banks are raising interest rates to contain prices but that increases borrowing costs for emerging markets and developing nations, which face high debt burdens. She said that the current crisis can only be addressed through multilateral financial aid and debt relief and emphasised that reducing debt is an urgent necessity — especially in emerging and developing economies with liabilities denominated in foreign exchange that are more vulnerable to tightening global financial conditions. She called on the G20 to boost coordinated international action including wealthier countries providing essential aid to poorer ones.
Current challenges do not mean a large downturn is inevitable but the fund also warned many low-income countries are either in or close to debt distress. While the G20 has agreed on a common framework for debt restructuring for the poorest countries, only three have qualified and more progress is needed. MD IMF warned that most of the world’s economies are completely shut out from global markets due to financial pressures and lack the safety net of a large domestic market. She added that they are calling on the international community to come up with bold measures to support their people and emphasised that is the call that is needed to be heeded. TW