The IMF lowers the outlook for the world economy in 2023 amid the Ukraine war

WASHINGTON-

The International Monetary Fund is lowering its outlook for the world economy for 2023, citing a long list of threats including Russia’s war against Ukraine, chronic inflationary pressures, punitive interest rates and the lingering fallout from the global pandemic.

The 190-nation credit rating agency forecast on Tuesday that the global economy would achieve growth of just 2.7% next year, down from the 2.9% it had estimated in July. The IMF left its international growth forecast for this year unchanged: a modest 3.2%, a sharp slowdown from last year’s 6% expansion.

“The worst is yet to come,” said IMF chief economist Pierre-Olivier Gourinchas. Three major economies, the United States, China and Europe, are stagnating. Countries that account for a third of global economic output will contract next year, suggesting that 2023 “will feel like a recession” for many people around the world, he said on Tuesday.

In its latest estimates, the IMF cut its US growth outlook to 1.6% this year, down from July’s forecast of 2.3%. He expects a meager 1% growth in the US next year.

The fund expects China’s economy to grow just 3.2% this year, down sharply from 8.1% last year. Beijing has instituted a draconian zero COVID policy and has cracked down on excessive real estate lending, disrupting business activity. China’s growth is forecast to accelerate to 4.4% next year, still tepid by Chinese standards.

In the IMF’s view, the collective economy of the 19 European countries sharing the euro, reeling from staggeringly high energy prices caused by Russia’s attack on Ukraine and Western sanctions against Moscow, will grow by just 0.5 % in 2023.

The global economy has endured a wild ride since COVID-19 hit in early 2020. First, the pandemic and the lockdowns it spawned crippled the global economy in the spring of 2020. Then, huge infusions of government spending and ultra-low rates Borrowing schemes engineered by the Federal Reserve and other central banks fueled an unexpectedly strong and quick recovery from the pandemic recession.

But the stimulus came at a high cost. Factories, ports, and freight yards were overwhelmed by powerful consumer demand for manufactured goods, especially in the United States, leading to delays, shortages, and higher prices. (The IMF expects global consumer prices to rise 8.8% this year, up from 4.7% in 2021.)

In response, the Fed and other central banks reversed course and began raising rates sharply, risking a sharp slowdown and potentially a recession. The Fed has raised its benchmark short-term rate five times this year. Higher rates in the United States have attracted investment from other countries and strengthened the value of the dollar against other currencies.

Outside the United States, the higher dollar makes imports that are sold in the US currency, including oil, more expensive and thus increases global inflationary pressures. It also forces foreign countries to raise their own rates, and burden their economies with higher borrowing costs, to defend their currencies.

Maurice Obstfeld, a former IMF chief economist who now teaches at the University of California, Berkeley, warned that an overly aggressive Fed could “push the world economy into an unnecessarily harsh contraction.”

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