Business conditions in the last three months have “darkened significantly,” and the risk of a global economic recession is on the rise, according to the head of the International Monetary Fund.
“It’s going to be a tough ’22, but maybe even a tougher 2023,” IMF Managing Director Kristalina Georgieva told Reuters on Wednesday.
IMF managing director Kristalina Georgieva told Reuters the fund would downgrade in coming weeks its 2022 forecast for 3.6% global economic growth for the third time this year, adding that IMF economists were still finalising the new numbers.
The IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing its forecast by nearly a full percentage point in April. The global economy expanded by 6.1% in 2021.
“The outlook since our last update in April has darkened significantly,” she told Reuters in an interview, citing a more universal spread of inflation, more substantial interest rate hikes, a slowdown in China’s economic growth, and escalating sanctions related to Russia’s war in Ukraine.
IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing its forecast by nearly a full percentage point in April.
Georgieva cited a broad spread of inflation, more substantial interest rate hikes, a slowdown in China’s economic growth and escalating sanctions related to Russia’s war in Ukraine were behind her more dour tone. “We are in very choppy waters,” she said. “The risk [of global recession] has gone up so we cannot rule it out.”
Recent economic data showed some large economies, including those of China and Russia, had contracted in the second quarters, she said, noting the risks were even higher in 2023. “It’s going to be a tough 2022, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”
The organization is now poised to cut its 2022 growth forecast yet again, according to Georgieva, who said the IMF’s economists were still finalizing numbers. In 2021, the global economy grew by 6.1%.
In the US, investors are increasingly concerned that the Federal Reserve is neglecting the risk of a severe economic downturn as it focuses on cooling inflation, which rose to 8.6% in May. The central bank plans a series of interest-rate rises, which it kicked off with a 75-basis point hike, to try to dampen demand to prevent inflation becoming entrenched.
Investment bank Nomura this week said it expects a wave of recessions around the world, including the US. Meanwhile, top economist Mohamed El-Erian has said the market is right to worry the US economy could tumble into a recession in the wake of the Fed’s moves.
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