[Comprehensive] IMF Lowers Global Growth Forecast Again for Next Year: "The Worst Is Yet to Come"

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "The worst is yet to come." The International Monetary Fund (IMF) has once again downgraded its global economic growth forecast for next year, warning that the situation could be much worse than this year. However, it also emphasized that central banks around the world, including the U.S. Federal Reserve (Fed), should continue on their current monetary policy normalization paths to curb inflation despite ongoing concerns about economic slowdown.

◆IMF Lowers Global Growth Forecast for Next Year to 2.7%

On the 11th (local time), ahead of the IMF-World Bank (WB) Annual Meetings, the IMF released its "World Economic Outlook" report, maintaining this year's global growth forecast at 3.2% while lowering next year's growth forecast to 2.7%.

Initially, the IMF projected next year's growth at 3.8% in January, then lowered it to 3.6% in April, 2.9% in July, and now has cut it by another 0.2 percentage points. Compared to the beginning of the year, this is a total reduction of 1.1 percentage points. The IMF described this as "the weakest growth trend since 2001, excluding the global financial crisis and the COVID-19 pandemic." Furthermore, it predicted that countries accounting for one-third of the global economy will experience at least two consecutive quarters of contraction either this year or next.

This downgrade was already anticipated. IMF Managing Director Kristalina Georgieva had warned earlier this month in a Georgetown University speech that risks of a global recession had increased due to inflation, interest rate hikes, and ongoing supply chain disruptions, signaling a forthcoming downward revision of next year's growth forecast.

By country, the U.S. growth forecast for this year was lowered by 0.7 percentage points from the July forecast of 2.3% to 1.6%. The forecast for next year remains unchanged at 1.0%. The Eurozone's growth forecast for this year rose by 0.5 percentage points to 3.1% compared to July, but next year's forecast was lowered by 0.7 percentage points to 0.5%. China's growth is estimated at 3.2% this year and 4.4% next year, down 0.1 and 0.2 percentage points respectively from the July forecast. South Korea's growth forecast for this year rose by 0.3 percentage points to 2.6%, while next year's forecast was lowered by 0.1 percentage points to 2.0%.

◆"Next Year Will Be Worse"...Recommendation to Maintain Monetary Tightening Path

The IMF stated , "Alongside soaring inflation, the global economy is experiencing a sharper and broader slowdown than expected," diagnosing that the immediate household cost-of-living crisis due to inflation, monetary tightening in many regions, Russia's invasion of Ukraine, and the prolonged COVID-19 pandemic are all weighing heavily on future economic prospects.

Pierre-Olivier Gourinchas, IMF Chief Economist, during a briefing immediately after the report release, emphasized that the energy shock in Europe is not temporary. He described the geopolitical realignment of energy supplies caused by Russia's invasion of Ukraine as "broad and persistent." He also forecasted that the EU's energy crisis will not be limited to this winter but is likely to worsen in the winter of 2023.

He further recommended that central banks maintain their current paths toward monetary policy normalization. He said, "Our recommendation is that central banks should maintain their (monetary policy) paths. This does not mean they should accelerate beyond what they are currently doing, but it also does not mean they should halt the path of normalization."

While emphasizing the critical importance of the current tightening measures to control inflation, his remarks also caution that accelerating the pace of tightening beyond the current speed could lead to greater side effects.

The IMF suggested in the report that "as policymakers aim to reduce inflation through normalization of monetary and fiscal policies, demand is being cooled," and recommended that "monetary policy should move toward restoring price stability, and fiscal policy should aim to maintain sufficient tightening in line with monetary policy while alleviating cost-of-living pressures."

This content was produced with the assistance of AI translation services.