IMF Warns of Higher Recession Risk and Darker Global Outlook

The latest released update from IMF expressed as IMF warns of higher recession risk and a darker global outlook.

On Thursday, two principal economists presented very different scenarios regarding the state of the global economy in the years to come. The International Monetary Fund is lowering its projections for global economic growth in 2023 once more.

The International Monetary Fund’s managing director, Kristalina Georgieva, informed a Georgetown University audience on Thursday that the IMF is lowering its projections for global economic growth by $4 trillion through 2026. This decrease will occur in 2023.

IMF warns of higher recession risk and darker global outlook
IMF warns of higher recession risk and darker global outlook

“Things are more likely to get worse before they get better,” she said, adding that the IMF’s outlook on the economy has been drastically altered by the Russian invasion of Ukraine, which began in February. She referred to the current economic climate as a “period of historic fragility,” and she stated that “the risks of recession are rising.”

On the other side of town, at the Center for Global Development, U.S. Treasury Secretary Janet Yellen talked about how the United States and its allies could help the global economy with longer-term investments. She did not use the term “recession” once and called for ambitious policy solutions. However, she stated that “the global economy faces significant uncertainty” in spite of her more measured perspective.

Russia, a key global energy and fertilizer supplier, has sharply escalated the conflict, exposing the vulnerabilities to the global food and energy supply, and the war in Ukraine has driven up food and energy prices worldwide, sometimes exponentially.

IMF warns of higher recession risk and darker global outlook
IMF warns of higher recession risk and darker global outlook

Other crises, such as the high debt levels held by countries with lower incomes, are also being exacerbated by the ongoing COVID-19 pandemic, rising inflation, and worsening climate conditions. Georgieva stated that the International Monetary Fund (IMF) has already downgraded its global growth projections three times and that countries accounting for one-third of the world’s economy will experience at least two consecutive quarters of economic contraction this year or next. It now anticipates 2.9% for 2023 and 3.2% for 2022.

The gloomy forecasts from the IMF come at a time when central banks all over the world are raising interest rates in an effort to contain inflation. While central banks from Asia to England have begun to raise rates this week, the U.S. Federal Reserve has been the most aggressive in using interest rate hikes as a tool to reduce inflation.”Tightening monetary policy too much and too quickly — and doing so in a synchronized manner across countries — could push many economies into a long-term recession,” Georgieva stated. In a recent article, economist Maurice Obstfeld of the University of California, Berkeley warned that excessive Federal Reserve tightening could “drive the world economy into an unnecessarily harsh contraction.”

“Macroeconomic tightening in advanced countries can have international spillovers,” Yellen concurred on Thursday. The speeches by the two economists come before the annual meetings of the 190-nation International Monetary Fund (IMF) and its sister lending agency, the World Bank, next week, which are intended to address the numerous risks to the global economy.

According to Georgieva, the fund’s revised World Economic Outlook, which will be released the following week, downgrades growth projections for the coming year. The invasion of Ukraine is already having a significant impact on the economies of many nations, and the IMF’s pessimistic projections are consistent with other growth forecasts.

Last week, the Organization for Economic Cooperation and Development said that the war will cause the global economy to lose $2.8 trillion in output in 2023. The projections come after the OPEC+ alliance of countries that export oil made a decision on Wednesday to drastically reduce production in order to support falling oil prices.

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This move has the potential to deal another blow to the struggling global economy and raise politically sensitive pump prices for drivers in the United States just before important national elections in November. “This is no time for us to retreat,” Yellen stated, noting that a number of developing nations are confronting all of these issues simultaneously, including debt, hunger, and skyrocketing costs. “When we update our vision for development financing and delivery, we need to be ambitious. In addition, “we need ambition in order to meet our global challenges,” she stated.