IMF warns of slowing growth and rising market risks as financial officials meet

WASHINGTON, Oct 11 (Reuters) – The International Monetary Fund warned on Tuesday that conflicting pressures from inflation, war-driven energy and food crises and sharply higher interest rates were pushing the world to the brink of recession and threatening the stability of the financial market.

In somber reports issued at the start of the first physical annual meetings of the International Monetary Fund and the World Bank in three years, the IMF urged central banks to keep up their fight against inflation despite the pain caused by monetary tightening and rising in the US dollar to a two-decade high, the two main drivers of a recent bout of volatility in financial markets.

Further cutting its global growth forecasts for 2023, the IMF said in its World Economic Outlook that countries that account for a third of global output could be in recession next year.

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“The three largest economies, the United States, China and the euro zone, will remain in the doldrums,” Pierre-Olivier Gourinchas, chief economist at the IMF, said in a statement. “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”

The IMF said global GDP growth next year will slow to 2.7%, compared to below its July forecast of 2.9%, as higher interest rates slow the US economy. a weakened real estate sector.

The global lender kept its 2022 growth forecast at 3.2%, reflecting stronger-than-expected output in Europe but weaker performance in the United States, after torrid global growth of 6.0% on Thursday. last year when the COVID-19 pandemic subsided.

Some key European economies will slip into a “technical recession” next year, including Germany and Italy, as energy prices soar and shortages hit output. China’s growth prospects have also dimmed as it struggles with ongoing COVID-19 lockdowns and a weakened real estate sector, where a deeper recession would further slow growth, the IMF said.

Mounting economic pressures, coupled with liquidity tightening, stubborn inflation and persistent financial vulnerabilities, are increasing the risks of disorderly swings in asset prices and contagion in financial markets, the IMF said in its Stability Report. Global Financial.

“It’s hard to think of a time when uncertainty was so high,” Tobias Adrian, the IMF’s director of capital and money markets, told Reuters in an interview. “We have to go back decades to see so much conflict in the world and at the same time inflation is extremely high.”

A man walks past the International Monetary Fund (IMF) logo at its headquarters in Washington, U.S., May 10, 2018. REUTERS/Yuri Gripas

Finance officials from the IMF’s 190 member countries are grappling with these uncertainties this week from different economic positions in Washington, along with the food and energy crises triggered by the war in Ukraine and other global challenges, including the massive financing needs of clean energy.

PRIORITY: INFLATION

The IMF said central bankers had a delicate balancing act to fight inflation without tightening too much, which could push the world economy into an “unnecessarily severe recession” and cause major economic pain in emerging markets that are seeing their currencies fall against the dollar.

But Gourinchas said controlling inflation was the top priority and that giving in too soon would undermine the “hard-earned credibility” of central banks.

“What we recommend is that central banks stay the course. That doesn’t mean they should speed up compared to what they’ve been doing,” Gourinchas told a news conference, adding that it was “a bit early” to change course. .

“I think at this point our advice is, ‘let’s make sure we see a decisive decline in inflation.'”

The IMF forecast that headline global consumer price inflation would peak at 9.5% in the third quarter of 2022, and decline to 4.7% in the fourth quarter of 2023.

But the picture could darken considerably if the global economy is hit by a “plausible combination of shocks,” including a 30% rise in oil prices from current levels, the IMF said, pushing global growth to 1. 0% next year, a level associated with declining real income.

Other components of this “downside scenario” include a sharp drop in investment from the Chinese real estate sector, a sharp tightening of financial conditions caused by depreciations of emerging market currencies, and continued overheating of labor markets that translates into lower potential production.

The IMF calculated a 25% chance of global growth falling below 2% next year – a phenomenon that has happened just five times since 1970 – and said there was more than a 10% chance of a global GDP contraction. .

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Information from David Lawder; Edited by Paul Simão

Our standards: the Thomson Reuters Trust Principles.

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