Global economic outlook: IMF does not expect a global recession

Status: 01/13/2023 08:49 a.m

The International Monetary Fund (IMF) is forecasting another difficult year for the global economy. However, he does not expect a global downturn. And the USA could also “land softly”.

The International Monetary Fund (IMF) is currently not assuming that the economic outlook for this year will deteriorate further. The IMF is unlikely to adjust its growth forecast of 2.7 percent for 2023 downwards. “Growth will continue to slow in 2023,” IMF Director Kristalina Georgieva told reporters in Washington. For 2022, the IMF had predicted that global gross domestic product would increase by 3.2 percent.

2023 will be another difficult year for the global economy and inflation will remain stubborn, Georgieva said. But she doesn’t expect consecutive downgrades like last year, barring unexpected developments. Instead, the IMF expects the slowdown in global growth to bottom out and reverse in late 2023 and early 2024.

Strong labor markets

The fears of an increase in oil prices have not materialized, and the job markets are still strong, it was said in justification. “The positive lies in the resilience of the labor markets. As long as people are employed, they spend money even when prices are high,” says Georgieva. This is also due to the fact that the governments reacted quickly and gave households financial support in the face of rising food and energy prices.

The IMF is therefore currently not expecting a global recession. Georgieva is hoping for positive impetus from China, among other things. After the People’s Republic recently gave up its strict zero-Covid policy, it can make a positive contribution to global economic growth.

However, there are still great uncertainties – including the risk of a major climate event, a major cyber attack or a further escalation of the Russian war in Ukraine through the use of nuclear weapons. “We are now in a world that is more prone to crises and we have to be open to the fact that there could be risks that we don’t even think about,” said the IMF chief. The unthinkable has happened twice in the last few years.

The US could “land softly” economically.

The world’s largest economy, the United States, can avoid a recession this year and achieve a “soft landing” for its economy, according to the IMF. “There is some reason to hope that the US will not go into recession,” Georgieva said. “Even if it’s technically a recession, I think it’s going to be a very mild recession.”

US labor markets are stable and consumer demand is strong despite rate hikes to fight inflation. There has been a healthy shift away from excess purchases of goods, which have pushed prices down, back to demand for services.

More social tensions?

Meanwhile, given the current economic situation, Georgieva fears a further increase in social tensions worldwide. “It’s only January 12,” and tensions for various reasons are already visible in Brazil, Peru, Bolivia, Colombia and Great Britain, said the IMF head. If the current economic situation affects the labor markets, more could be added.

Georgieva also referred again to the danger that the debt burden of many countries would increase dramatically in view of rising interest rates. The IMF has been warning for months that around 60 percent of emerging and developing countries are at risk of falling into a serious debt crisis. That is why a high-level meeting on debt restructuring with representatives of the largest lenders and the private sector must take place in February, the Bulgarian economist called for.

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