"Uncertainty Grows" IMF Lowers Global Economic Growth Forecast to 2.8% for This Year

The International Monetary Fund (IMF) has slightly downgraded the global economic growth rate to 2.8% for this year. Inflation remains at a high level, and financial risks due to high-intensity monetary tightening have increased, leading to greater uncertainty surrounding the global economic outlook. There is even a possibility that if the worst-case scenario materializes, the global economic growth rate could slow down to 1% this year.

On the 11th (local time), the IMF released its World Economic Outlook (WEO) report, forecasting that the global economic growth rate will be 2.8% this year and 3.0% next year. These figures are each 0.1 percentage points lower than the WEO projections made in January.

Pierre-Olivier Gourinchas, IMF Chief Economist, stated, "The global economy is gradually recovering from the impacts of the COVID-19 pandemic and Russia's invasion of Ukraine, and the reopened Chinese economy is rebounding strongly." However, he added, "Recent instability surrounding the banking sector crisis reminds us that the situation remains fragile. Downside risks still dominate, and the fog surrounding the global economic outlook has thickened."

By region, the IMF raised its growth forecast for advanced economies this year to 1.3%, up 0.1 percentage points from the previous projection. Conversely, emerging markets and developing countries were downgraded to 3.9%, each lowered by 0.1 percentage points. The forecast for next year remains unchanged at 1.4% for advanced economies and 4.2% for emerging and developing countries. These new figures reflect necessary monetary tightening to reduce inflation, recent expansion of financial risks, the ongoing war in Ukraine, and escalating geopolitical divisions. The report diagnosed that "especially the hard landing of advanced economies has become a much greater risk."

By country, the United States is expected to grow by 1.6% this year and 1.1% next year, which is 0.2 and 0.1 percentage points higher than the January forecast, respectively. China’s growth is projected at 5.2% this year and 4.5% next year, unchanged from the previous forecast. The Eurozone is expected to grow by 0.8% this year and 1.4% next year. Notably, the UK (-0.3%) and Germany (-0.1%) are forecasted to experience negative growth this year. Russia, which recorded -2.1% last year due to sanctions following the invasion of Ukraine, is estimated to grow by 0.7% this year, an upward revision of 0.4 percentage points from the previous forecast. South Korea is expected to grow by 1.5% this year and 2.4% next year.

The IMF identified persistently high inflation despite high-intensity tightening by major countries since last year as a major economic risk. It was initially expected that signals of weakening production and employment due to tightening policies would be observed by now, but labor markets in most advanced economies remain strong. This inevitably prolongs the tightening period. Core inflation, excluding volatile energy and food prices, is still understood not to have peaked.

The report forecasts global inflation to be 7% this year and 4.9% next year, down from 8.7% last year. These figures are 0.4 and 0.6 percentage points higher than the January forecast, respectively. Chief Economist Gourinchas said, "This suggests that monetary policy may need to be further tightened or maintained in a restrictive stance longer than currently expected," and predicted, "The disinflation process may take longer than anticipated."

The recent impact of the Silicon Valley Bank (SVB) crisis confirming the effects of rapid tightening on the financial sector was also cited as a risk. Gourinchas warned, "Last year’s rapid monetary tightening triggered significant losses in long-term bond assets and increased funding costs. The stress test on the financial system will continue. As seen with Credit Suisse (CS), nervous investors will look for the next most vulnerable link." He added that financial institutions with excessive leverage, credit risk, and high reliance on short-term funding, as well as countries with weak fundamentals, could be the next targets.

Rapid global financial tightening directly hits the credit and fiscal conditions of emerging markets and developing countries, potentially triggering massive capital outflows. Gourinchas stated, "If a seriously bad scenario materializes, global economic growth could slow to 1% this year, which means per capita income would be nearly stagnant," adding, "The probability of this is about 15%."

The IMF assessed the current situation as a challenging phase where inflation has not yet passed its peak amid sluggish economic growth and increased financial risks. It also urged policymakers to communicate clearly, actively use fiscal policy, and take measures to prevent financial vulnerabilities from turning into a full-scale crisis.

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