IMF CUTS 2023 GROWTH OUTLOOK AMID COLLIDING GLOBAL SHOCKS

WASHINGTON - The International Monetary Fund on Tuesday cut its global growth forecast for 2023 amid colliding pressures from the war in Ukraine, high energy and food prices, inflation and sharply higher interest rates, warning that conditions could worsen significantly next year.

The Fund said its latest World Economic Outlook forecasts show that a third of the world economy will likely contract by next year, marking a sobering start to the first in-person IMF and World Bank annual meetings in three years.

“The three largest economies, the United States, China and the euro area will continue to stall,” IMF chief economist Pierre-Olivier Gourinchas said in a statement. “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.” The IMF said global GDP growth next year will slow to 2.7 percent, compared to a 2.9 percent forecast in July, as higher interest rates slow the U.S. economy, Europe struggles with spiking gas prices and China contends with continued Covid-19 lockdowns and a weakening property sector.

The Fund is keeping its 2022 growth forecast at 3.2 percent, reflecting stronger-than-expected output in Europe but a weaker performance in the United States, after torrid 6.0 percent global growth in 2021.

U.S. growth this year will be a meager 1.6 percent - a 0.7 percentage point downgrade from July, reflecting an unexpected second-quarter GDP contraction. The IMF kept its 2023 U.S. growth forecast unchanged at 1.0 percent.

A U.S. Treasury official said before the release of the IMF forecasts that the U.S. economy “remains quite resilient, even in the face of some significant global headwinds.”

The IMF said its outlook was subject to a delicate balancing act by central banks to fight inflation without over-tightening, which could push the global economy into an “unnecessarily severe recession” and cause disruptions to financial markets and pain for developing countries. But it pointed squarely at controlling inflation as the bigger priority.

“The hard-won credibility of central banks could be undermined if they misjudge yet again the stubborn persistence of inflation,” Gourinchas said. “This would prove much more detrimental to future macroeconomic stability.” – REUTERS.