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IMF: The world's largest economies will remain stagnant in 2023

The prospects for economic growth in the U.S., China, and the euro zone were reduced by the international organization.

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Rushed by the latest events of the war in Ukraine, which directly impact energy prices, food and interest rates, the International Monetary Fund (IMF) presented its new World Economic Outlook (WEO) report for the next year, warning of a negative trend that could worsen current conditions.

The report says a third of global GDP is likely to contract next year, marking a grim start to the first annual face-to-face meetings of the IMF and World Bank in three years.

Likewise, the IMF underlines that global GDP growth in 2023 will suffer a slowdown of at least 2.7%, compared to a forecast of 2.9% in July, which is clearly linked to higher interest rates that slow down the economy and the real estate sector in the United States.

“Global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022, before falling to 6.5% in 2023 and 4.1% in 2024. The monetary policy course must be maintained to restore price stability, and fiscal policy should seek to alleviate pressures on the cost of living, maintaining a sufficiently restrictive orientation so that it is aligned with monetary policy,” indicates the IMF through a statement.

The IMF signaled no change to its forecast regarding the expansion of the US economy, keeping the figure at 1%. For its part, growth this year will be 1.6%, a reduction of 0.7 percentage points since July that represents an unexpected contraction of GDP in the second quarter.

The magnifying glass on inflation

“Inflation is ultimately people's expectation of how prices will rise in the future. We observe that the more hindsight people's expectations are, the more they will have to raise interest rates,” says the IMF through its blog.

IMF highlights the scenarios that concern it the most:

  • The orientation adopted for monetary policy may not be the optimal one to reduce inflation.
  • Diverging policy paths in major economies could exacerbate U.S. dollar appreciation.
  • More restrictive global financing could lead to over-indebtedness tensions in emerging markets.
  • A worsening of the crisis in the real estate sector in China could undermine growth.

The IMF indicated that headline consumer price inflation would peak at 9.5% in the third quarter of 2022, before falling to 4.7% in the fourth quarter of 2023.

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