The International Monetary Fund (IMF) has reduced its expectation for global economic output for the fourth time this year, paring it to 3.2 percent this year and 2.9 percent in 2023.

Prospects for growth are being battered by a “toxic mix of inflation, higher borrowing costs, and lingering supply chain disruptions,” the Wall Street Journal said. 

Europe’s economy is being crushed by an energy crisis, China’s property industry remains in crisis, and economic growth in the U.S. is ebbing, IMF managing director Kristalina Georgieva noted in a 6 October speech at Georgetown University.

The world’s economy will produce $4 trillion less in value by 2026 than if the COVID lockdowns, inflation, rising interest rates, war in Ukraine, and Western sanctions had not happened, the IMF’s trendline shows, she said.

“This is the size of the German economy,” she added, “a massive setback for the world.”

“Multiple shocks, among them senseless war, changed the economic picture completely” and are causing “severe strains,” especially among emerging economies, Georgieva said, transforming earlier optimism about strong post-COVID recovery to fears of runaway inflation and global recession.

“Far from being transitory, inflation has become more persistent,” she noted.

Raising interest rates and “tightening monetary policy too much and too fast—and doing so in a synchronized manner across countries—could push many economies into prolonged recession,” she warned.

In a 6 October speech at the Center for Global Development, U.S. treasury secretary Janet Yellen said central banks’ “prime responsibility” is to stabilize prices, but also urged them to “recognize that macroeconomic tightening in advanced countries can have international spillovers.”

Still, the IMF is encouraging central banks to continue raising interest rates.

“Not tightening enough would cause inflation to become de-anchored and entrenched, which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” she argued.

Too many dramatic rate hikes could lead to a recession, she acknowledged, but raising rates too little or too slowly would have worse consequences, Georgieva said.

The U.S. Federal Reserve, the engine driving many of the global increases in interest rates, is aware of the burdens the hikes place on emerging nations but will continue to raise rates nonetheless, Fed vice-chair Lael Brainard said in a late September speech.

“Even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices,” Georgieva added.

The war in Ukraine and resulting Western sanctions will drain $2.8 trillion in potential economic activity out of the global economy next year, the Organization for Economic Cooperation and Development said in a statement last week.

The growing number of extreme weather events is an additional factor exacerbating other crises such as food shortages and contributing to unmanageable debt loads among emerging nations, she pointed out.

“Things are more likely to get worse before it gets better,” she said. “The risks of recession are rising.” 

Countries accounting for a third of the world’s productivity will see at least two consecutive quarters of economic contraction this year or next, meeting the technical definition of a recession.

Also last week, OPEC+ announced a cutback in global oil production, a move likely to push up oil prices and add to the woes of developing economies.

The Worst is Yet to Come

A new report by the IMF’s World Economic Outlook published today foresees “the weakest growth profile since 2001.” Last year the global Gross Domestic product was 6 percent. For 2022, they see falling by almost 50 percent to 3.2 percent. 

“The worst is yet to come, and for many people 2023 will feel like a recession,” the report said, repeating what we had forecast.

TREND FORECAST: As we noted in “Fed Raises Rate Three-Quarters of a Point as Recession Looms” (27 Sep 2022), the Fed, the International Monetary Fund, the World Bank, and other agencies are chipping away at their growth forecasts for the balance of this year and next.

The cause: Dragflation, our Top 2022 Trend in which economic output contracts while prices rise higher.

Those forecasts are backward-looking, based on data being collected now from past events.

Data we see now, in real time—from Britain, from the European Union, from China, from the U.S.—all point toward a crumbling global economy that will be in turmoil at best, and a disastrous recession at worst, for the balance of 2022 and well into 2023.

While we forecast deep economic pain, Kristalina Georgieva, managing director of the International Monetary Fund, to an extent, agrees with our forecast: even if 2023 manages to avoid a worldwide recession, it still will feel like one.

Going Down 

The world’s trade in goods will grow just 1 percent next year under the burden of higher interest rates, rising energy prices, and shortages and disruptions wrought by Russia’s war in Ukraine and resulting Western sanctions, the World Trade Organization (WTO) predicted last week.

The WTO’s previous prediction was 3.4 percent. The new projection is a 70-percent reduction from that earlier figure.

The global economy overall will grow 2.3 percent next year, the WTO said, down almost a third from its earlier expectation of 3.3 percent.

Growth could stall further if central banks raise interest rates too high too fast, the WTO warned.

“The global economy faces a multipronged crisis,” WTO director-general Ngozi Okonjo-Iweala said in a statement announcing the reduced outlook. “The picture for 2023 has darkened considerably.”

U.S. export of goods was 0.3 percent lower in August than in July, the first decline since January this year, the U.S. Commerce Department reported. Also in August, the U.S. imported 1.5 percent fewer goods than in the month before.
The slowdown in international trade already has taken a toll on the shipping industry, with voyages canceled and rates plummeting, as we report in “Shipping Lines Cancel Cargo Voyages for Lack of Demand” in this issue.