“A third of the global economy is likely to contract this year or next amid shrinking real incomes and rising prices”held Pierre-Olivier GourinchasEconomic Counselor and Director of the Agency’s Studies Department.
The projection of 2.7% for next year represents a cut of 0.2 percentage points compared to the Fund’s previous calculation (last July). “The 2023 slowdown will be broad-based, with countries that make up about a third of the global economy poised to contract this year or next,” Gourinchas assessed.
The world’s largest economies, the United States, China and the euro zone will remain stagnant. “In general, this year’s shocks will reopen economic wounds that were only partially healed after the pandemic. In short, the worst is yet to come, and for many people, 2023 will feel like a recession.” the economist argued.
In the United States, the tightening of monetary and financial conditions will slow growth to 1%. China will grow in 2023 “only” 4.4% due to a weakened housing sector and ongoing lockdowns. And more pronounced is the slowdown in the euro area, where the energy crisis caused by the war will continue to take a heavy toll, reducing growth to 0.5% next year.
Thus, Next year, Argentina will face weakened markets for its exports. In this regard, another of its main trading partners, Brazil, will also see its growth rate decrease, which will go from 2.8% this year to 1% next year.
IMF: risks for the world economy
Pierre-Olivier Gourinchas outlined different risks facing the world economy:
- The risk of a miscalibration of monetary, fiscal or financial policy has increased considerably amid high uncertainty and growing fragilities.
- Global financial conditions could deteriorate and the dollar could strengthen further, should financial market turbulence emerge, pushing investors into safe havens. This would significantly increase inflationary pressures and financial fragilities in the rest of the world, especially emerging markets and developing economies.
- Inflation could once again prove more persistent, especially if labor markets remain extremely tight.
- Finally, the war in Ukraine is still raging and further escalation may exacerbate the energy crisis.
Worse still, the IMF calculates that there is a one in four chance that global growth next year will fall below the historically low level of 2%. If many of the risks materialize, global growth would slow to 1% with per capita income almost stagnant in 2023. According to the agency, the probability of such an adverse outcome, or worse, is 10 to 15%.
strong dollar
The report also notes that for many emerging markets “the strength of the dollar is a great challenge”. The US currency is at its highest valuation since the early 2000s.
“The appropriate response in most emerging and developing countries is to calibrate monetary policy to maintain price stability, while allowing exchange rates to adjust, and to hold on to valuable foreign exchange reserves for when financial conditions really can. get worse”, argues Pierre-Olivier Gourinchas.
Source: Ambito
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