The International Monetary Fund Managing Director Kristalina Georgieva told Reuters on Wednesday that a global recession cannot be ruled out next year given the elevated risks. She said that the future of the global economy had “darkened significantly” since April.
IMF is reportedly going to downgrade its 2022 forecast in the coming weeks for 3.6% global economic growth for the third time this year, economists are still finalizing the new numbers.
The updated forecast for 2022 and 2023 is expected to be released in late July.
“The outlook since our last update in April has darkened significantly,” Georgieva 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.
“We are in very choppy waters,” she said. When asked about the possibility of a global recession she said, “The risk has gone up so we cannot rule it out.”
“It’s going to be a tough ’22, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”
Concern is brewing amongst investors about such risks, with a reliable indicator for a looming recession being the US Treasury’s yield curve being inverted for the second day in a row on Wednesday.
Federal Reserve Chair Jerome Powell last month said the US was not trying to engineer a recession but was fully committed to bringing prices under control even if doing so risked an economic downturn.
Georgieva added that it was crucial to get surging prices under control despite complications arising due to longer-lasting tightening of financial conditions.
The global outlook is more diversified now compared to two years ago, with energy exporters, including the United States, on a better footing, while importers are struggling.
The IMF chief said that slower economic growth may be a “necessary price to pay” given the critical and pressing need to restore price stability.
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