IMF warns ‘worst is yet to come’ for world economy

The International Monetary Fund said Tuesday that the world economy was headed for “stormy waters” as it downgraded its global growth projections for next year and warned of a harsh worldwide recession if policymakers mishandled the fight against inflation.

The grim assessment was detailed in the fund’s closely watched World Economic Outlook report, which was published as the world’s top economic officials traveled to Washington for the annual meetings of the World Bank and the IMF.

Read | IMF cuts 2023 growth outlook amid colliding global shocks

The gathering arrives at a fraught time, as persistent supply chain disruptions and Russia’s war in Ukraine have led to a surge in energy and food prices over the past year, forcing central bankers to raise interest rates sharply to cool off their economies. Raising borrowing costs will probably tame inflation by slowing business investment and consumer spending, but higher rates could also yield a new set of problems: a cascade of recessions in rich nations and debt crises in poor ones.

There are growing fears among policymakers that a so-called soft landing will elude the global economy.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the IMF report said.

The organization maintained its most recent forecast that the global economy will grow 3.2 per cent this year but now projects that will slow to 2.7 per cent in 2023, slightly lower than the fund’s previous estimate. Both figures are big comedowns from the start of the year.

Inflation is expected to peak later this year and decline from 8.8 per cent in 2022 to 6.5 per cent percent in 2023.

“The risks are accumulating,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said during an interview in which he described the global economy as weakening. “We’re expecting about a third of the global economy to be in a technical recession.”

The fund defines a “technical recession” as an economy that contracts for two consecutive quarters.

Corporate America and Wall Street are already bracing for a downturn. Jamie Dimon, the CEO of JPMorgan Chase, told CNBC on Monday that the United States was likely to be “in some kind of recession six to nine months from now.”