IMF Says Banking Troubles Create Headwinds for Global Economy
WASHINGTON—Global economic growth is cooling while facing risks from the volatile banking sector, high inflation and climbing interest rates, the International Monetary Fund said Tuesday.
Total economic output is projected to increase 2.8% this year, a slowdown from 3.4% last year, as nations continue recovering from slumps caused by the pandemic and the war in Ukraine, the IMF said in its latest World Economic Outlook report. Its new 2023 forecast was little changed—just 0.1 percentage point lower—from its January projection.
The multilateral financial organization also sees global growth accelerating to 3% next year, the report said, citing some encouraging signs.
China’s reopening after its long pandemic lockdowns is injecting vigor into the Asian economy. The U.S. and European economies see their growth supported by resilient consumer demand and strong job markets. Emerging markets are expanding faster than rich countries, and supply-chain crunches seen during the pandemic and following Russia’s invasion of Ukraine are unwinding.
Yet the risks to growth have grown significantly, IMF economists said, alluding to the banking system turmoil that erupted in March. The sudden, dangerous decline in confidence in the banking system resulted in the failure of two midsize U.S. banks and the forced acquisition of
Credit Suisse Group AG
by its longtime rival
UBS Group AG
.
“The financial challenges that a number of countries have experienced are casting a shadow on our outlook,” said Pierre-Olivier Gourinchas, the IMF’s research director. “We are seeing a lot of downside risks going forward.”
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What is your outlook for the global economy this year? Join the conversation below.
Another major risk, he said, is persistent inflation, which could require central banks to raise interest rates beyond what is already projected. The IMF forecasts global inflation to cool, with consumer prices rising 7% this year and 4.9% in 2024, compared with 8.7% in 2022. But the organization projects a slower ebbing of underlying core inflation, which excludes volatile energy and food prices.
The economy, therefore, is entering a perilous phase where financial risks have risen while inflation isn’t contained, even as growth remains low by historical standards.
The IMF’s longer-term outlook remains dim. The global economy remains weighed down by the effects of the war in Ukraine and the growing rivalry between the U.S. and China. The IMF has cautioned against economic fragmentation, or the breakup of the world trading system into rival blocs comprising either the U.S. and its allies or China, Russia and their allies.
Silicon Valley Bank failed last month amid declining confidence in the banking system.
Photo:
Steven Senne/Associated Press
Looking five years ahead, the IMF forecasts global economic growth of 3% in 2028, the lowest such forecast in decades.
“That does not give us high hope for meeting the aspirations of people, especially poor people, around the world and, most importantly, poor people in poor countries,” IMF director
Kristalina Georgieva
said Monday as she kicked off the spring meetings of the IMF and the World Bank.
The global slowdown this year is led by advanced economies in Europe, according to the IMF. The eurozone’s economy is forecast to expand by just 0.8% this year, down from 3.5% last year. The U.K.’s economy is projected to shrink by 0.3% in 2023 after expanding by 4% in 2022.
The U.S. economy is expected to grow 1.6% this year, down from 2.1% in 2022, the IMF said.
China’s growth, meanwhile, is seen accelerating to 5.2% this year from 3% last year.
Write to Yuka Hayashi at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
WASHINGTON—Global economic growth is cooling while facing risks from the volatile banking sector, high inflation and climbing interest rates, the International Monetary Fund said Tuesday.
Total economic output is projected to increase 2.8% this year, a slowdown from 3.4% last year, as nations continue recovering from slumps caused by the pandemic and the war in Ukraine, the IMF said in its latest World Economic Outlook report. Its new 2023 forecast was little changed—just 0.1 percentage point lower—from its January projection.
The multilateral financial organization also sees global growth accelerating to 3% next year, the report said, citing some encouraging signs.
China’s reopening after its long pandemic lockdowns is injecting vigor into the Asian economy. The U.S. and European economies see their growth supported by resilient consumer demand and strong job markets. Emerging markets are expanding faster than rich countries, and supply-chain crunches seen during the pandemic and following Russia’s invasion of Ukraine are unwinding.
Yet the risks to growth have grown significantly, IMF economists said, alluding to the banking system turmoil that erupted in March. The sudden, dangerous decline in confidence in the banking system resulted in the failure of two midsize U.S. banks and the forced acquisition of
Credit Suisse Group AG
by its longtime rival
UBS Group AG
.
“The financial challenges that a number of countries have experienced are casting a shadow on our outlook,” said Pierre-Olivier Gourinchas, the IMF’s research director. “We are seeing a lot of downside risks going forward.”
SHARE YOUR THOUGHTS
What is your outlook for the global economy this year? Join the conversation below.
Another major risk, he said, is persistent inflation, which could require central banks to raise interest rates beyond what is already projected. The IMF forecasts global inflation to cool, with consumer prices rising 7% this year and 4.9% in 2024, compared with 8.7% in 2022. But the organization projects a slower ebbing of underlying core inflation, which excludes volatile energy and food prices.
The economy, therefore, is entering a perilous phase where financial risks have risen while inflation isn’t contained, even as growth remains low by historical standards.
The IMF’s longer-term outlook remains dim. The global economy remains weighed down by the effects of the war in Ukraine and the growing rivalry between the U.S. and China. The IMF has cautioned against economic fragmentation, or the breakup of the world trading system into rival blocs comprising either the U.S. and its allies or China, Russia and their allies.
Silicon Valley Bank failed last month amid declining confidence in the banking system.
Photo:
Steven Senne/Associated Press
Looking five years ahead, the IMF forecasts global economic growth of 3% in 2028, the lowest such forecast in decades.
“That does not give us high hope for meeting the aspirations of people, especially poor people, around the world and, most importantly, poor people in poor countries,” IMF director
Kristalina Georgieva
said Monday as she kicked off the spring meetings of the IMF and the World Bank.
The global slowdown this year is led by advanced economies in Europe, according to the IMF. The eurozone’s economy is forecast to expand by just 0.8% this year, down from 3.5% last year. The U.K.’s economy is projected to shrink by 0.3% in 2023 after expanding by 4% in 2022.
The U.S. economy is expected to grow 1.6% this year, down from 2.1% in 2022, the IMF said.
China’s growth, meanwhile, is seen accelerating to 5.2% this year from 3% last year.
Write to Yuka Hayashi at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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