IMF warns of financial turmoil to hit global growth

Lowered its forecast for global growth in 2023 to 2.8%

The International Monetary Fund (IMF) on Tuesday cut its global growth forecast for 2023 slightly with the pace of interest rate hikes having slowed but warned that severe disruptions in the financial system could reduce output to near-recession levels.

This is what the International Monetary Fund’s latest World Economic Outlook report published at the start of the joint spring meetings with the World Bank in Washington.

The IMF stated that the risk of contagion in the banking system was contained

during strong political measures after the collapse of two American banks and the forced merger of Credit Suisse.

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“With the recent increase in financial market volatility, uncertainty surrounding the outlook for the global economy has increased,” it said.

“Uncertainty increases and the balance of risks strongly shifts to a downward trend when the financial sector is unstable,” the IMF added.

The IMF now expects global real GDP growth to be 2.8 percent in 2023 and 3 percent in 2024, a sharp decline from 3.4 percent growth in 2022 as a result of tightening monetary policy.

The IMF cut forecasts for 2023 and 2024 by 0.1 percentage points from the January estimate, partly due to the weak performance of some major economies, as well as expectations of further monetary tightening to combat persistent inflation.

The IMF’s outlook for the United States improved slightly, with growth expected to be 1.6 percent in 2023 versus the 1.4 percent growth forecast in January as the labor market remains strong.

But the IMF cut its forecasts for some major economies, including Germany, whose economy is now expected to contract 0.1 percent in 2023, and Japan, which is now expected to grow 1.3 percent this year down from the January 1.8 percent.

The International Monetary Fund raised its core inflation forecast for 2023 to 5.1 percent, from 4.5 percent in January, saying it had not yet peaked in many countries despite lower energy and food prices.

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