The International Monetary Fund (IMF) is lowering its growth forecasts for the global economy. Inflation will remain high for years to come, according to the IMF.
Global economic growth will be well below the historic average in 2023, the International Monetary Fund warns. In the period between 2000 and 2021, including the financial and economic crisis and the corona pandemic, the global economy grew by an average of 3.6 percent per year.
- Global economic growth will be well below the historic average this year and next.
- The US and European economies will or are already in a recession.
- If policy remains unchanged, the Belgian government debt will rise to 115 percent of gross domestic product in 2027.
According to the IMF, we will not achieve that 3.6 percent growth this year and next. In its latest growth forecast, the UN agency expects growth of 3.2 percent this year and 2.7 percent in 2023. “Slowing growth reflects economic decline in some of the world’s largest economies,” the IMF says. In the United States, the economy contracted in the first half of the year, in the eurozone it will contract in the second half of the year and the Chinese economy is also facing enormous challenges due to a spreading crisis in the real estate sector and the ongoing strict zero-covid policy.’
The IMF sees three key factors determining the pace of growth in the coming years: the monetary policy of the central banks, the war in Ukraine and the aftermath of the corona pandemic. In the West, citizens moan under sky-high energy bills, and in less affluent countries, citizens often spend up to half of their income on food. That is why the IMF emphasizes ‘the acute need’ to bring energy and food inflation under control.
But because monetary policy is slowing down the real economy, the institution also warns of the risk of monetary overshoot, which makes the economic pain worse than necessary.
Inflation is now so widespread that it will not soon cool down to normal levels. After global inflation of 8.8 percent this year, the institution is counting on global inflation of 6.5 percent in 2023 and 4.1 percent in 2024. One bright spot is that the IMF does not immediately fear a wage-price spiral: ‘ Even though wages have increased in nominal terms during this year and last, in most countries real wages have fallen or remained at the same level. That development has more of a deflationary effect.’
The worst is yet to come, and for many people 2023 will feel like a recession.
The war in Ukraine is the second factor of uncertainty: ‘In Europe in particular, the war has serious economic consequences, such as higher energy prices, plummeting consumer confidence and less industrial activity.’ Moreover, the institution believes that the worst is yet to come. The winter of 2023 will be ‘probably worse’, as Europe will have to look to countries other than Russia for its energy supplies next year and beyond.
Finally, the IMF notes that the foothills of the pandemic are still affecting economic reality, even though corona is gradually fading into the background in large parts of the world. China’s ongoing severe lockdowns continue to disrupt global supply chains.
The institution immediately gives advice: ‘Price ceilings, widely spread subsidies or export bans are expensive and inefficient, because they lead to higher demand and less supply.’ It is a message that the Belgian government should also take into account, because the IMF calculated that the Belgian government debt – if policy remains unchanged – will increase from 108.4 percent of gross domestic product in 2021 to 115.1 percent in 2027.