Amidst the worldwide economic uncertainty, the IMF chief warns of a sluggish global economy and persistent inflation in the upcoming months.
According to the IMF, the baseline prediction for global production growth in 2023 is 0.1 percentage points lower than forecasted figures in the January 2023 WEO Update, before rebounding to 3.0 percent in 2024.
Kristalina Georgieva, Managing Director of the International Monetary Fund, stated on Thursday that the global economy has shown itself to be impressively robust to successive economic shocks, but it has yet to overcome a combination of poor growth and sticky inflation.
The IMF thinks that the world economy will only grow by 2.8% in 2023, which is not good enough to create opportunities for businesses and people. The global output growth of 2022 was 3.4%, showing a big fall in the figures.
Also, growth in advanced economies is predicted to fall sharply, from 2.7% in 2022 to 1.3% in 2023. They are also worried that the slow growth will continue for a long time.
The global economy is still recuperating from the enormous changes of the previous three years, and the new financial crisis has added to the uncertainty.
Because of decreasing commodity prices, global inflation is predicted to fall from 8.7% in 2022 to 7% in 2023. However, vital core inflation remains high. It is vital to highlight that this forecast is contingent on the present financial situation not deteriorating.
After overcoming the COVID-19 pandemic and facing issues with high inflation and the impact of the war in Ukraine, policymakers have two important tasks ahead – tackling persistent inflation and protecting financial stability.
However, these tasks have become more difficult due to the banking problems caused by the failure of two American regional banks and the sale of Credit Suisse, a global lender.
If the banking system becomes unstable, it could make it harder and longer for people all over the world to get loans. This will happen because many countries may raise interest rates at the same time, which could make it harder for people to borrow money. Also, many countries owe a lot of money, as well.
All of these problems could happen at a time when it’s hard for governments to help because they don’t have much money to spend, especially in poorer countries.
As the IMF chief warns of a sluggish global economy and persistent inflation, Policymakers must tread a fine line between preventing a recession and ensuring financial stability.
To achieve robust, sustainable, and equitable growth, policymakers must remain flexible and ready to change when new information becomes available. As long as the financial crisis is not systemic, as it is now, central banks should prioritize the battle against inflation.
The financial policy should stay laser-focused on ensuring financial stability and keeping an eye out for any risk accumulation in banks, non-banks, and the real estate sector.
