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.
In an interview with The Washington Post, the managing director of the IMF warned against the risks to the global economy from competition between China and the US.
Kristalina Georgieva explained that US and European efforts would make sense if they redraw global supply change to prevent reliance on a single supplier.
However, she added, if the two powers are building new trade barriers to gain an advantage in their geopolitical competition, “they could set a destructive cycle that would hurt middle-class and poor households.”
“My concern is a deepening fragmentation in the world economy,” said Georgieva, adding that “We may be sleepwalking into a world that is poorer and less secure as a result.”
IMF managing director warned that a divided global economy would shrink by 1.5 percent annually, or by over $1.4 trillion.
“I lived through the first Cold War on the other side of the Iron Curtain. And, yeah, it is quite cold out there,” said Georgieva.
“And to go in a second cold war for another generation is … very irresponsible.”
She said President Joe Biden has yet to resolve the major issue of his predecessor's tariffs on Chinese goods in 2018 that cost US importers billions of dollars.
Commenting on the Trump-era tariffs, Georgieva said: “It is important to think through actions and what they may generate as counter actions carefully because once you let the genie out of the bottle, it’s hard to put it back in.”
(With inputs from Reuters)
