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Politico
POLITICO
11 Apr 2023
Zachary Warmbrodt


NextImg:‘Turbulence is building’: IMF warns of ‘hard landing’ for global economy

The International Monetary Fund on Tuesday sketched a bleak picture of what’s in store for the global economy, estimating that growth will slow more than expected this year.

The IMF said the “anemic outlook” reflects the higher interest rates needed to bring down persistent inflation, the deterioration of financial conditions amid banking turmoil, the war in Ukraine and growing geoeconomic fragmentation.

“Below the surface ... turbulence is building, and the situation is quite fragile, as the recent bout of banking instability reminded us,” IMF director of research Pierre-Olivier Gourinchas said in the opening to the institution’s World Economic Outlook.

The IMF said in the report that global output will bottom out at 2.8 percent in 2023 — down from 3.4 percent in 2022 and 0.1 percentage-point lower than it predicted in January. The numbers reflect the IMF’s base case in which financial sector stress is contained.

The fund expects growth to settle at 3 percent five years out — the lowest medium-term forecast in decades.

The expected slowdown this year is concentrated in advanced economies, especially the euro area and the U.K. The U.K. economy is seen contracting by 0.3 percent in 2023.

The IMF said potential risks to its economic outlook are “heavily skewed to the downside.” The group warned that the chances of an economic “hard landing” — a significant downturn after a period of growth — have risen sharply.

“Policymakers have a narrow path to walk to improve prospects and minimize risks,” the IMF said.

A plausible scenario involving further financial sector stress would have global growth decline to about 2.5 percent in 2023 — the weakest since the downturn of 2001, barring the initial Covid-19 emergency and the 2009 global financial crisis, the IMF said.

“With the recent increase in financial market volatility and multiple indicators pointing in different directions, the fog around the world economic outlook has thickened,” the IMF said. “Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled.”