The International Monetary Fund (IMF) on Tuesday sounded an alarm for “the worst” to come on the global economic front and apprehended that recession would hit next year. It simultaneously scaled down India’s GDP forecast for the current fiscal (year 2022-23 or FY 23) by 60 basis points to 6.8 per cent from 7.4 per cent estimated earlier.
In its latest World Economic Outlook (WEO), released on the eve of the annual Fund-Bank meeting, IMF maintained the global growth forecast at 3.2 per cent for 2022, while the projection for 2023 was lowered to 2.7 per cent, 20 basis points less than the July forecast. In his customary blog, Economic Counsellor and the Director of Research of the IMF, Pierre-Olivier Gourinchas, said the global economy continues to face “steep challenges” shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.
Further, he said the 2023 slowdown will be broad-based, with countries accounting for about one-third of the global economy poised to contract this year or the next.
“The three largest economies, the US, China, and the Euro area will continue to stall. Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession,” Gourinchas said.
His advice was that while the global economy is headed for “stormy waters, now is the time for emerging market policymakers to batten down the hatches”. Eligible countries with sound policies should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund. “Countries should also aim to minimise the impact of future financial turmoil through a combination of pre-emptive macro-prudential and capital flow measures, where appropriate, in line with IMF’s Integrated Policy Framework,” he said.
Highlighting that the dollar is getting stronger, WEO acknowledged that for many emerging markets, it is a major challenge. The dollar is now at its strongest since the early 2000s, although the appreciation is most pronounced against currencies of advanced economies. So far, the rise appears mostly driven by fundamental forces such as tightening US monetary policy and the energy crisis, it added.
Talking about India, WEO said that the outlook for growth of 6.8 per cent in 2022 –– a 0.6 percentage point downgrade since the July forecast “reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand –– and 6.1 per cent in 2023, with no change since July.”