WASHINGTON- The global economic outlook is even gloomier than projected last month, the International Monetary Fund said on Sunday, citing a steady worsening in purchasing manager surveys in recent months.
It blamed the darker outlook on tightening monetary policy triggered by persistently high and broad-based inflation, weak growth momentum in China, and ongoing supply disruptions and food insecurity caused by Russia’s invasion of Ukraine.
The global lender last month cut its global growth forecast for 2023 to 2.7 percent from a previous forecast of 2.9 percent.
In a blog prepared for a summit of G20 leaders in Indonesia, the IMF said recent high-frequency indicators “confirm that the outlook is gloomier,” particularly in Europe.
It said recent purchasing manager indices that gauge manufacturing and services activity signaled weakness in most Group of 20 major economies, with economic activity set to contract while inflation remained stubbornly high.
“Readings for a growing share of G20 countries have fallen from expansionary territory earlier this year to levels that signal contraction,” the IMF said, adding that global fragmentation added to “a confluence of downside risks.”
“The challenges that the global economy is facing are immense and weakening economic indicators point to further challenges ahead,” the IMF said, adding that the current policy environment was “unusually uncertain.”
A worsening energy crisis in Europe would severely harm growth and raise inflation, while prolonged high inflation could prompt larger-than-anticipated policy interest hikes and further tightening of global financial conditions.
That in turn posed “increasing risks of a sovereign debt crisis for vulnerable economies,” the IMF said.
Increasingly severe weather events would also harm growth across the globe, it said.
The IMF said Global GDP growth next year will slow to 2.7 percent, compared, down from its July forecast of 2.9 percent, as higher interest rates slow the U.S. economy, Europe struggles with spiking gas prices and China contends with continued COVID-19 lockdowns and a weakening property sector.
The global lender maintained its 2022 growth forecast at 3.2 percent, reflecting stronger-than-expected output in Europe but a weaker performance in the United States, after torrid 6.0 percent global growth last year as the COVID-19 pandemic eased.
The growing economic pressures, coupled with tightening liquidity, stubborn inflation and lingering financial vulnerabilities, are increasing the risks of disorderly asset repricings and financial market contagions, the IMF said
The IMF said central bankers had a delicate balancing act to fight inflation without over-tightening, which could push the global economy into an “unnecessarily severe recession” and heap economic pain on emerging markets that are seeing their currencies fall sharply against the dollar.
The IMF forecast that global headline consumer price inflation would peak at 9.5 percent in the third quarter of 2022, declining to 4.7 percent by the fourth quarter of 2023.
But the outlook could darken considerably if the world economy is hit by a “plausible combination of shocks,” including a 30 percent spike in oil prices from current levels, the IMF said, pushing global growth down to 1.0 percent next year – a level associated with widely falling real incomes.
Other components of this “downside scenario” include a steep drop-off in Chinese property sector investment, a sharp tightening of financial conditions brought on by emerging market currency depreciations and a continued overheating of labor markets that results in lower potential output.
The IMF put a 25 percent probability of global growth falling below 2 percent next year – a phenomenon that has occurred only five times since 1970 – and said there was more than a 10 percent chance of a global GDP contraction.
