A third of the world economy could fall into recession by 2023, according to a new forecast by the International Monetary Fund (IMF). The forecast is the weakest it has ever been in nearly 20 years – with the exception of forecasts during the pandemic and the global financial crisis.
As the main reason, the IMF cites the sharp rise in prices since the Russian attack on Ukraine, which has significantly limited purchasing power. The world economy is facing huge challenges, because inflation is more prolonged than thought and even China is losing its purchasing power. “The worst is expected to come and many people in 2023 will have the feeling of a recession,” says IMF economist Pierre-Olivier Gourinchas.
In general, the IMF has again reduced the forecast for 2023. According to the latest report, the world economy will grow by only 2.7 percent, in July 2.9 percent is expected. For the following year 2022, a plus of 3.2 percent is calculated. Against 2021 with a 6.0 percent increase, the current quota pales.
The most important economic regions are weakening Europe is particularly affected by the war in Ukraine. Gas prices since 2021 have quadrupled. In the US, consumption is no longer giving impulses to the economy as usual, and in China, restrictions from Corona have a negative effect, as well as tensions in the real estate market. When will inflation end?
The IMF predicts that inflation in many countries is currently at the highest level for several decades and will reach its peak at the end of 2022. But it will continue to remain at a significantly high level. Worldwide consumer prices will increase by 8.8 percent and in 2023 by about 6.5 percent. Thus, the forecasts so far will again be corrected with increasing numbers. In 2024, a price increase of 4.1 percent is expected. Expanding and developing countries will be affected more severely than industrialized countries. For them the strengthening of the dollar, currently at its highest level in two decades, is a big problem.
The focus is currently on the reserve banks, which have recently been trying to significantly increase interest rates in order to achieve a stable price development. According to the IMF, this policy may have consequences, because the increase in interest rates can stifle economic growth, while the reluctance to increase interest rates cannot curb inflation.
Russia’s economy is shrinking less than expected
Another result of the annual report is that, although the Russian economy will shrink this year and next year, its decline will be lower than predicted. According to this report, the gross domestic product of Russia in 2022 will decrease by 3.4 percent and in 2023 by 2.3 percent. The effect of Western sanctions is felt a little in Russia’s financial sector. The labor market is also resilient, according to the IMF.
Slowdown in the three largest economies
Even before the presentation of the annual report, the head of the IMF, Kristalina Georgieva, made it clear that forecasts for the economy have decreased. She also emphasizes that the situation may worsen even further, before the improvement begins. Against the backdrop of the Russian war in Ukraine and the pandemic, uncertainty is extremely high. There may be more economic shock. “We see a slowdown in the three most important economies in the world”, Georgieva drew attention at the opening of the World Bank’s annual meeting in Washington. The weakening of economic growth in the US, China and the Eurozone has significant consequences for the world economy./DW
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