IMF Lowers Forecast for Global Economic Growth After Banking Crises

Lingering effects of the pandemic and new pressures from banking crises are impacting economic growth.

The International Monetary Fund (IMF) has lowered its baseline forecast for global output growth by 0.1% compared with what it predicted in January, the IMF said in a Tuesday (April 11) press release.

“The world economy is still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties,” IMF Chief Economist Pierre-Olivier Gourinchas said in the release.

The IMF’s World Economic Outlook, which was released Tuesday, now expects global growth to fall from 3.4% in 2022 to 2.8% this year and then rise to 3.0% in 2024, according to the press release.

In advanced economies, growth is expected to slow from 2.7% in 2022 to 1.3% this year, the release said.

“Importantly, this outlook assumes that recent financial stresses remain contained,” Gourinchas said in the release.

There is continuing concern about inflation and growing worry about a recession, according to the press release.

The IMF expects global headline inflation to fall from 8.7% in 2022 to 7% in 2023. This decline is being driven by lower commodity prices but is being countered in part by longer lasting underlying core inflation, the release said.

“Once again, risks are heavily tilted to the downside, they have risen with the recent financial turmoil,” Gourinchas said in the release. “Most prominently, recent banking system turbulence could result in a sharper and more persistent tightening of global financial conditions.”

The IMF suggested in the World Economic Outlook that central banks should focus on fighting inflation, communicate their objectives clearly to reduce the risk of volatility, tighten fiscal policies to ease inflation and, in developing countries, take measures to slow any capital outflows that threaten financial stability.

“With the fog around current and prospective economic conditions thickening, policymakers have a narrow path to walk towards restoring price stability while avoiding a recession and maintaining financial stability,” the IMF said in the release. “Achieving strong, sustainable and inclusive growth will require policymakers to stay agile and be ready to adjust as information becomes available.”