The International Monetary Fund, IMF, and the United Nations, UN, have cautioned in their most recent report on the global economy that “the worst is still to come, and for many people, 2023 will feel like a recession.” They reduced their projection for the world economy due to a number of variables.
One such example is the global shift to high-interest rates in order to combat inflation. The risk of financial policy “miscalibration” had “risen dramatically,” according to the IMF.
The global economy “remains historically weak,” they warned, and financial markets are “showing indications of stress.” 1
Inflation, according to the IMF, is “the most direct danger to present and future prosperity.” They anticipate that inflation will peak this year.
However, it will remain elevated for a long period. Despite efforts by central banks to pull it down. Most central banks strive to keep inflation at or below 2%.
They are doing so by hiking interest rates substantially. These significant increases are part of the worldwide economic danger.
Russia’s conflict on Ukraine, soaring inflation, and China’s economic slowdown are all contributing factors to the global slump.
According to the research, the Ukraine conflict continues to “powerfully undermine the global economy.” It is driving up global fuel and food prices.
According to the IMF, there is a good probability that global growth will dip below 2%. In comparison, 6% is expected in 2021. Only five times since 1970 has global growth fallen below 2%. According to the IMF, 2017 will be the third weakest global economy since 2001. Only the 2008 financial crisis and the pandemic’s peak were worse.
“Next year will be difficult,” said IMF chief economist Pierre-Olivier Gourinchas. “There will be a lot of slowdown and economic suffering,” he said.
The world’s biggest economies have been downgraded by the IMF. The United States is expected to rise by 1.6% this year and 1% in 2023. China has also been demoted. The coronavirus continues to hamper their economy.
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Following its World Economic Outlook Report, the IMF issued its Global Financial Stability Report. According to the research, “the global environment is fragile, with storm clouds on the horizon.”
Furthermore, authorities all around the world are dealing with a “unusually tough financial stability environment,” in which additional shocks “may induce market illiquidity, disorderly sell-offs, or distress.”
The IMF is not alone in its assessment. The World Bank, like the UN, issued a similar warning. According to the United Nations Conference on Trade Development, central bank policies could do more harm to the global economy than the 2008 financial crisis or the pandemic.
According to the UN, the globe is “on the verge of a recession.” They expect that Asian countries would be the hardest hit.
The consequences of Asian countries falling will reverberate throughout the global economy. Higher interest rates and a stronger currency could precipitate a catastrophic debt crisis in South and Western Asia.
“As the global economy heads for stormy waters, financial volatility may certainly erupt, compelling investors to seek the safety of safe-haven investments,” the IMF report stated.
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