IMF Warns of Global Economic Weakness

The International Monetary Fund (IMF) has provided an updated assessment of the global economic outlook. While the IMF sees improved prospects for central banks to control inflation without pushing the world economy into a recession, it also warns of persistent weakness and uneven growth.

According to the IMF’s report, the global economy is expected to expand by 3% this year, aligning with its earlier prediction from July. This resilience is attributed to stronger-than-anticipated growth in the United States, offsetting weaker projections for China and Europe. However, the forecast for 2024 growth has been slightly reduced to 2.9%.

The ongoing conflict between Israel and Hamas, which has resulted in significant loss of life, is a concern, but the IMF stated it is too early to assess its impact on global economic growth.

IMF
The global economy is limping along. Source/ Internet

The IMF emphasized the global economy’s resilience in the face of pandemic challenges and geopolitical tensions but pointed out that risks continue to lean toward the downside. While economic activities have slowed, they have not come to a standstill. The recovery is described as “limping along.”

The IMF’s projections indicate a “soft landing” scenario for global growth and inflation, particularly in the United States. Still, the recovery remains uneven, with Europe and China experiencing weaker-than-expected rebounds compared to previous estimates.

Eurozone countries are expected to grow by 0.7% this year and 1.2% in 2024, downgraded from prior forecasts. China’s projected growth has also been revised to 5% for 2023 and 4.2% for 2024, indicating a slower pace of expansion.

The United States stands out as having the strongest recovery among major economies, with the IMF raising its growth forecasts to 2.1% in 2023 and 1.5% in 2024. However, inflation remains a concern. The IMF anticipates that inflation will continue to fall, contributing to a “soft landing” in major economies, but it does not expect inflation to reach central banks’ targeted levels until 2025 in most cases.

Additionally, concerns over commodity prices and energy costs are addressed. Food prices remain high, and geopolitical factors like the conflict in Ukraine could cause further disruptions, especially for low-income countries. The recent surge in oil prices, driven by the Israel-Hamas conflict and other factors, has raised concerns about broader inflationary pressures.

The IMF notes that it is too early to gauge the sustained impact of elevated oil prices but suggests that a 10% increase in oil prices could raise global inflation by approximately 0.4 percentage points.

Finally, the IMF expresses concerns that high inflation could become a self-fulfilling prophecy, with expectations of future inflation driving current inflation rates higher. This “expectations channel” is critical in determining whether central banks can achieve a soft landing regarding inflation.

The IMF also highlights that vulnerabilities in the commercial real estate sector pose a significant risk to the financial industry, particularly with falling real estate prices. Policymakers are urged to evaluate how a sharp decline in real estate values could affect financial institutions.

See also: How Strikes Impact US Jobs Reports

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