That’s the view of the International Monetary Fund (IMF), which on Tuesday downgraded its outlook for global economic growth.
The IMF now envisions growth this year of 2.8 per cent, down from 3.4 per cent in 2022 and from the 2.9 per cent estimate for 2023 it made in its previous forecast in January.
The global economy, the fund warned in Tuesday’s report, is “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.”
“The situation remains fragile,″ Pierre-Olivier Gourinchas, the IMF’s chief economist,said on Tuesday. “Downside risks predominate.″
The IMF, a 190-country lending organisation, is forecasting 7 per cent global inflation this year, down from 8.7 per cent in 2022 but up from its January forecast of 6.6 per cent for 2023.
Persistently high inflation is expected to force the US Federal Reserve and other central banks to keep raising rates and to keep them at or near a peak longer to combat surging prices.
Those ever-higher borrowing costs are expected to weaken economic growth and potentially destabilise banks that had come to rely on historically low rates.
Already, Gourinchas warned, higher rates are “starting to have serious side effects for the financial sector.”
The fund’s annual Global Financial Stability Report, also released Tuesday, issued recommendations for international decision makers:
“Policymakers may need to adjust the stance of monetary policy to support financial stability” – that is, possibly rethink the pace of interest rate hikes that are intended to cool inflation.
The fund foresees a 25 per cent likelihood that global growth will fall below 2 per cent for 2023. That has happened only five times since 1970, most recently when COVID-19 derailed global commerce in 2020.
The IMF also envisions a 15 per cent possibility of a “severe downside scenario,” often associated with a global recession, in which worldwide economic output per person would shrink.
Treasurer Jim Chalmers told Today yesterday global uncertainty would define the May 9 federal budget.