The International Monetary Fund said prospects for the world economy are more pessimistic than what it forecast last month as downside risks from the effects of Russia’s war and persistent inflation materialize.
A steady worsening in recent months for purchasing manager indexes that track Group of 20 economies “confirm that the outlook is gloomier” than outlined in the October World Economic Outlook, Tryggvi Gudmundsson, an economist in the IMF’s research department, said in a blog post Monday. The difficulties “are immense, and weakening economic indicators point to further challenges ahead.”
In last month’s WEO, the Washington-based fund IMF cut its forecast for global growth next year to 2.7%, from 2.9% seen in July and 3.8% in January, adding that it sees a 25% probability that growth will slow to less than 2%.
Consumers globally are grappling with a deepening cost-of-living crisis spurred by food and fuel inflation that, in many locations, shows few signs of easing. High prices have triggered a wave of interest-rates increases that has made debt repayments more expensive and raised worries about a funding blockage in low-income and emerging-market nations.
“Continued fiscal and monetary tightening is likely needed in many countries to bring down inflation and address debt vulnerabilities — and we do expect further tightening in many G-20 economies in the months ahead,” Gudmundsson said in the blog that accompanied the release of a report prepared for the gathering of G-20 leaders in Bali, Indonesia, next week. “These actions will continue to weigh on economic activity, especially in interest-sensitive sectors such as housing.”
Last month, the IMF calculated that about one-third of the world economy will have at least two consecutive quarters of contraction this year and next, and that the lost output through 2026 will be $4 trillion.
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