The International Monetary Fund lowered its forecast for global growth for the year on Tuesday, saying that the ongoing effects of a wave of bank failures, rising interest rates, and persistent inflation put the world economy at greater danger of a “hard landing.”
According to the Washington-based organization’s most recent World Economic Outlook, the global gross domestic product would only rise by 2.8% this year, down 0.1 percentage points from its January prediction, before increasing to 3% in 2024.
The report stated that “the major forces that affected the world in 2022…seem likely to continue into 2023.” “However, fresh worries about financial stability are now combining with and obscuring these forces. A harsh landing has increased in risk, especially for advanced economies. To reduce sticky inflation and promote growth while simultaneously ensuring financial stability, policymakers may have to make unpleasant trade-offs.
The disparity is even more pronounced in developed nations, where after a decade of extremely low interest rates, people are still having trouble adjusting to the consequences of tighter monetary policy. The IMF forecasts modest growth of just 1.3% in 2023 and 1.4% the next year, with GDP set to decrease in over 90% of advanced economies this year.
The IMF predicts that the U.S. economy would expand by just 1.6% this year and 1.1% the next year, a tiny improvement over the predictions made in January.
“A return of the global economy to the pace of economic growth that prevailed before the plethora of shocks in 2022 and the recent financial sector turmoil is increasingly elusive,” the report stated.
Many economies are still adjusting to the shocks more than a year after Russia’s invasion of Ukraine and the spread of more virulent COVID-19 strains. The recovery is also being hampered by the recent tightening of international financial conditions.