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The outlook for the world economy this year has dimmed in the face of chronically high inflation, rising interest rates, and uncertainties resulting from the collapse of two big American banks
The outlook for the world economy this year has dimmed in the face of chronically high inflation, rising interest rates, and uncertainties resulting from the collapse of two big American banks. This view was expressed by the International Monetary Fund, which recently downgraded its outlook for global economic growth. The IMF now envisions growth this year of 2.8%, down from 3.4% in 2022 and from the 2.9% estimate for 2023.
The fund said the possibility of a “hard landing,” in which rising interest rates weaken growth so much as to cause a recession, has risen sharply, especially in the world’s wealthiest countries. Those conditions are also increasing the risks to global financial stability, the fund warned. The IMF, a 190-country lending organization, is forecasting 7% global inflation this year, down from 8.7% in 2022 but up from its January forecast of 6.6% for 2023.
Persistently high inflation is expected to force the Federal Reserve and other central banks to keep raising rates and to keep them at or near a peak longer to combat surging prices. Those ever-higher borrowing costs are expected to weaken economic growth and potentially destabilize banks that had come to rely on historically low rates.
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The IMF also envisions a 15% possibility of a severe downside scenario, often associated with a global recession, in which worldwide economic output per person would shrink. The fund now expects the United States, the world’s biggest economy, to grow 1.6% this year, down from 2.1% in 2022 but up from the 1.4% expansion that the IMF had predicted in January. A robust U.S. job market has supported steady consumer spending despite higher borrowing rates for homes, cars and other major purchases.
