IMF cuts world GDP outlook a third time

The International Monetary Fund cut its global growth outlook for this year and next, warning that the world economy may soon be on the cusp of an outright recession.

Global economic expansion will likely slow to 3,2 percent this year, less than the 3,6 percent forecast by the fund in April and the 4,4 percent seen in January, the IMF said in an update to its World Economic Outlook released on Tuesday.

The series of interest-rate increases that central banks have unleashed to contain inflation “is expected to bite” in 2023, with global output growth set to slow to 2,9 percent, it said.

While the crisis lender is still forecasting positive growth, that will do little to quell rising concern of receding expansion or even outright recession in major economies as accelerating price increases eat away at incomes, savings and profits.

“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said.

Consumer prices have consistently climbed more quickly than expected, with the fund seeing inflation accelerating even further this year as higher food and energy costs couple with lingering supply-and-demand imbalances. 

It now projects the global consumer-price gauge to increase 8.3 percent this year, which would be the biggest jump since 1996.

The April estimate was 7.4 percent.

The risks the fund outlined in the April edition of the World Economic Outlook are materialising, the fund said.

Such dangers include a worsening of the war in Ukraine, escalation of sanctions on Russia, a sharper-than-anticipated slowdown in China, renewed Covid-19 flare-ups and an inflation wave that’s forcing central banks to raise interest rates. 

And the risks to the revised outlook “are overwhelmingly tilted to the downside,” it said.

Among the plethora of concerns is the potential for “a sudden stop” of European gas imports from Russia due to the war, more persistent inflation and a further escalation of a property crisis in China.- Bloomberg