The International Monetary Fund (IMF) has highlighted a 25 per cent probability for the global economic growth to fall below 2 per cent in 2023, according to findings in its latest report. The fund expects global growth to remain unchanged this year at 3.2 percent and to gradually slow by next year, the report added. Among other burdens slowing global growth include high inflation, adverse impact of the Russia-Ukraine crisis, as well as toll of the Covid-19 pandemic. Pierre-Olivier Gourinchas, the IMF’s Chief Economist pointed out, “The global economy is weakening further and facing a historically fragile environment. The outlook continues to be shaped by three forces. Persistent and broadening inflation, causing a cost-of-living crisis, the Russian invasion of Ukraine and the associated energy crisis, and the economic slowdown in China.” For the first time, he added, “we calculated risks around the baseline projections. We find there is a 25 per cent chance that growth will fall below 2 per cent in 2023. “This happened exceedingly rarely in the past and a 10 to 15 per cent chance it will fall below 1 percent, corresponding to a decline in real output per capita,” said Gourinchas. According to the outlook, downside risks remain elevated while policy trade-offs to address the cost-of-living crisis have become acutely challenging. The risk of monetary, fiscal, or financial policy miscalibration has risen sharply at a time when the world economy remains historically fragile and financial markets are showing signs of stress. “High post-pandemic debts and higher borrowing costs could cause widespread debt distress in low-income countries. A deeper real estate crisis in China could cause severe financial stress. The war could further destabilise energy markets. A resurgence of the pandemic would hit under-vaccinated regions hard, especially Africa. Lastly, further geopolitical fragmentation could hamper global policy coordination and trade,” added Gourinchas. Directive to inflation looms “The biggest fight now is the fight against inflation. Central banks are laser focused and they need to keep a steady hand. Growth will slow in 2023 as conditions tighten and some financial fragilities may emerge. But the main priority should be to restore price stability,” he said.
