The International Monetary Fund on Tuesday trimmed its 2023 global growth outlook slightly as higher interest rates cool activity but warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.
The IMF said in its latest World Economic Outlook report that banking system contagion risks were contained by strong policy actions after the failures of two U.S. regional banks and the forced merger of Credit Suisse. But the turmoil added another layer of uncertainty on top of stubbornly high inflation and spillovers from Russia’s war in Ukraine.
“With the recent increase in financial market volatility, the fog around the world economic outlook has thickened,” the IMF said as it and the World Bank launch spring meetings this week in Washington.
The IMF is now forecasting global real GDP growth at 2.8% for 2023 and 3.0% for 2024, marking a sharp slowdown from 3.4% growth in 2022 due to tighter monetary policy.
Both the 2023 and 2024 forecasts were marked down by 0.1 percentage points from estimates issued in January, partly due to weaker performances in some larger economies as well as expectations of further monetary tightening to battle persistent inflation.
The IMF’s U.S. outlook improved slightly, with growth in 2023 forecast at 1.6% versus 1.4% forecast in January as labor markets remain strong. But the Fund cut forecasts for some major economies including Germany, now forecast to contract 0.1% in 2023 and Japan, now forecast to grow 1.3% this year instead of the 1.8% forecast in January.
The IMF raised its 2023 core inflation forecast to 5.1%, from a 4.5% prediction in January, saying it had yet to peak in many countries despite lower energy and food prices.
“Monetary policy needs to stay focused on price stability” to keep inflation expectations in check, IMF chief economist Pierre-Olivier Gourinchas told a news conference.
In a Reuters interview, Gourinchas said central banks should not halt their fight against inflation because of financial stability risks, which look “very much contained.”
Source: Reuters
