The head of the International Monetary Fund (IMF) said on Wednesday that the outlook for the global economy “has darkened considerably” since April and that she cannot rule out a possible global recession next year given the heightened risks.
IMF director Kristalina Georgieva told Reuters that in the coming weeks the fund would lower its 2022 forecast of 3.6% global economic growth for the third time this year, adding that IMF economists were still finalizing the new numbers. .
The IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing the forecast by nearly a full percentage point in April. The global economy grew by 6.1% in 2021.
“The outlook since our last update in April has deteriorated 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 it. with the Russian war in Ukraine.
“We are in very choppy waters,” she said. When asked if she could rule out a global recession, she said, “The risk has gone up, so we can’t rule it out.”
Recent economic data showed that a number of major economies, including those of China and Russia, shrank in the second quarter, she said, noting that risks were even greater in 2023.
“It’s going to be a tough ’22, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”
Investors are increasingly concerned about recession risks, with a significant portion of the US Treasury yield curve inverting for the second day in a row on Wednesday, providing a reliable indicator that a recession is imminent.
Federal Reserve chairman Jerome Powell said last month that the US central bank was not trying to bring about a recession, but was fully committed to bringing prices under control, even if it risked an economic downturn.
Georgieva said a prolonged tightening of financial conditions would complicate the global economic outlook, but added that it was crucial to get rising prices under control.
The global outlook was now more heterogeneous than two years ago, with energy exporters, including the United States, outperforming while importers struggling, she said.
Slower economic growth may be a “necessary price to pay” given the urgent and urgent need to restore price stability, she said.