IMF warns of gloomier global economic outlook

The International Monetary Fund (IMF) has warned of a gloomier global economic outlook due to multiple headwinds including Russia’s invasion of Ukraine, interest rate increases to contain inflation and lingering pandemic effects, such as China’s lockdowns and disruptions in supply chains.

The latest World Economic Outlook from the IMF released last month also lowered its global growth forecast for 2023 to 2.7% and Tryggvi Gudmundsson, an economist at the IMF, says the organisation expects countries accounting for more than one third of global output to contract during part of this year or next year.

In addition, in its latest report prepared for the G20, the IMF says recent high-frequency indicators confirm that the outlook is gloomier, with a steady worsening in recent months for purchasing manager indices that are tracking a range of G20 economies.

“A growing share of G20 countries fell from expansionary territory earlier this year to levels that signal contraction. That is true for both advanced and emerging market economies, underscoring the slowdown’s global nature.”

ALSO READ: Softer US inflation provides good news for SA and consumers

Gudmundsson says while gross domestic product releases for the third quarter surprised on the upside in some major economies, October PMI releases point to weakness in the fourth quarter, particularly in Europe.

Intermittent pandemic lockdowns and the struggling real estate sector in China contribute to a slowdown that is evident not only in PMI data, but also in investment, industrial production and retail sales, which will inevitably have a significant impact on other economies due to China’s large role in trade.

“Despite growing evidence of a global slowdown, policymakers should continue to prioritize containing inflation, which is contributing to a cost-of-living crisis that hurts low-income and vulnerable groups the most. As our G20 report emphasizes, the macroeconomic policy environment is unusually uncertain,” Gudmundsson says.

ALSO READ: SA factory activity improves but Transnet, load shedding challenges persist

However, he points out that continued fiscal and monetary tightening is probably needed in many countries to bring down inflation and address debt vulnerabilities.

“We expect further tightening in many G20 economies in the months ahead. Nonetheless, these actions will continue to weigh on economic activity, especially in interest-sensitive sectors, such as housing.

The global economy faces immense challenges and weakening economic indicators point to further challenges ahead.

“However, with careful policy action and joint multilateral efforts, the world can move toward stronger and more inclusive growth,” Gudmundsson says in his blog post.

According to Bloomberg, the IMF calculated that about one-third of the world economy will have at least two consecutive quarters of contraction this year and next year, with the lost output through 2026 reaching $4 trillion.