Global Economy Predicted Only Grows 3,2 Percent This Year

Illustration. (Photo: Unsplash)

JAKARTA - The International Monetary Fund (IMF) on Tuesday 11 October projected a global economy to grow by 3.2 percent this year and 2.7 percent in 2023, with the revision down 0.2 percentage points for 2023 from July's forecast, according to a recent World Economic Outlook (WEO) report. The global economy is experiencing "a number of volatile challenges," due to higher inflation than seen in decades, tightening financial conditions across much of the region, Russia-Ukraine conflicts, and the prolonged COVID-19 pandemic, all heavily burdening prospects, citing the report. "This is the weakening growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic and reflects a significant slowdown in the largest economy," the report said. The real gross domestic product (GDP) contract that lasted for at least two consecutive quarters (several economists called it a "technical recession" seen at several points during 2022-2023 at about 43 percent of the economy, amounting to more than a third of the world's GDP, according to the report. Noting that the risks to prospects remain unusually large and to the negative side, the latest WEO report says that monetary policy can miscalculate the right attitude to reduce inflation, more energy and food price shocks could cause inflation to last longer, and global tightening in financing conditions could trigger widespread growing country market debt pressure. The IMF warns that geopolitical fragmentation could hinder trade and capital flow, which further hampers climate policy cooperation. "The balance of risk tends to strengthen to the negative side, with about 25 percent of global growth opportunities in the next year falling below 2.0 percent - in 10th percent of global growth results since 1970," the report noted. "The risk of calibration of monetary, fiscal, or financial policy calibration has increased sharply at a time of high uncertainty and increased vulnerability," IMF chief economist Pierre-Olivier Gourunchas said at a press conference at the 2022 IMF and World Bank Annual Meeting on Tuesday. "Global financial conditions could worsen, and the dollar would strengthen further, if turmoil in the financial market erupted," the IMF chief economist said, noting that this would significantly add to inflationary pressures and financial vulnerabilities around the world, especially in emerging markets and developing countries. Inflation can, once again, prove more persistent, especially if the labor market remains very tight, Gourunchas said. Eventually, the war in Ukraine is still raging and further escalation could exacerbate the energy crisis, he added. The IMF argues that strict and aggressive monetary tightening is "important" to avoid de-anchoring inflation. "The flexibility of the central banks obtained with great difficulty can be damaged if they misasses the stubborn persistence of inflation. This will prove to be far more damaging to macroeconomic stability in the future," Gourunchas said, urging central banks to stick to monetary policy that firmly focuses on eliminating inflation. The IMF chief economist noted fiscal policy should not work with the goal of colliding with monetary authorities' efforts to reduce inflation. "Performing this will only prolong inflation and could lead to serious financial instability, as recent events have illustrated," he said. In a recent report, the IMF also highlighted that the energy and food crisis, coupled with extreme summer temperatures, is a "real" reminder of what an uncontrolled climate transition might look like. "There are some costs of making climate transitions on the macroeconomic side, these costs are very, very moderate compared to the cost of not making climate transitions," Gourunchas said at a press conference in response to a question from Xinhua. Noting that climate transition is a "phase" process, Gourunchas says the profits are much greater if the process starts early. "So yes, we have to face an energy crisis now. Yes, a number of countries are facing a situation where they need to get more energy to generate electricity during winter, and more. But the path that we have to start in terms of climate transition is something we can't ignore either," he said.