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“The escalation of the war in Ukraine continues to raise food prices and may further destabilize,” IMF chief economist Pierre-Olivier Gourinchas said in a blog post.
The International Monetary Fund (IMF) sees central banks managing paradoxes at best Controls inflation Without derailing the global economy DepressionBut it warned on Tuesday that growth was weak and patchy.
The company said it expects the global economy to expand 3% this year on its line. July forecastStronger-than-expected growth in the United States offset the downgrade to the outlook China and Europe. It revised down its forecast for growth in 2024 by 0.1 percentage point to 2.9%.
IMF chief economist Pierre-Olivier Gourinchas told reporters it was too early to assess how. A recent conflict The conflict between Israel and Hamas — which has now claimed at least 900 lives in Israel alone — could affect economic growth in the region and the rest of the world. He said the IMF was monitoring the situation, noting that the agency’s latest global economic outlook was finalized before the fighting broke out.
Echoing comments released in July, the IMF highlighted the global economy’s resilience to the twin shocks of the pandemic and the Ukraine war.
“Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled,” Gourinchas wrote in a blog post. “The world economy is faltering,” he added.
The IMF’s projections for growth and inflation are “increasingly consistent with a ‘soft landing’ scenario… particularly in the US,” Gourinchas continued.
But he warned that growth was “slow and uneven”, compared with forecasts three months ago, with weaker recoveries now expected in much of Europe and China.
The 20 countries that use the euro are collectively expected to grow by 0.7% this year and 1.2% next year, down 0.2 percentage points and 0.3 percentage points respectively from July.
The IMF now expects China to grow 5% this year and 4.2% in 2024, up from 5.2% and 4.5% previously.
“China’s Property sector crisis With global spillovers, especially for cargo exporters, it could be profound,” it said in its statement
In contrast, the US is expected to grow much stronger this year and next than expected in July. The IMF upgraded its growth forecasts for the US economy to 2.1% in 2023 and 1.5% in 2024 – an improvement of 0.3 percentage points and 0.5 percentage points, respectively.
“The strongest recovery among major economies is in the United States,” the IMF said.
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Guangzhou, China has been hit hard by the country’s property crisis.
The agency expects inflation to continue to fall — bolstering its case for a “soft landing” in major economies — but doesn’t expect it to return to levels targeted by central banks until 2025 in most cases.
The IMF revised its forecasts for global inflation to 6.9% this year and 5.8% next year – increases of 0.1 percentage point and 0.6 percentage points respectively.
Commodity prices pose a “serious risk” to the inflation outlook and could become more volatile amid climate and geopolitical shocks, Gourinchas wrote.
“Food prices continue to rise, and an escalation of the war in Ukraine could further destabilize and cause more hardship in many low-income countries,” he added.
Oil prices increased on Monday The latest conflict between Israel and Hamas is on concern that it will cause wider instability in the oil-producing Middle East. Brent crude oil prices have already risen Supply cuts Major producers are Saudi Arabia and Russia.
High oil and natural gas prices have driven energy costs skyrocketing, helping to push inflation in many economies to multi-decade highs in 2022. The recent spike in oil prices could account for the broader price hike.
Gourinchas said on Tuesday that it was difficult to assess how long-lasting the impact on oil prices would be. International Monetary Fund models suggest that a 10% increase in oil prices would raise global inflation by 0.4 percentage points. “But I stress that it is too early to jump to any conclusions here,” he added.
Bond investors are already there on the edge. They shed Government bonds were issued last week on expectations that the world’s major central banks will keep interest rates “high” to reduce inflation to their targets.
The IMF also indicated concern that high inflation could become a self-fulfilling prophecy. If households and businesses expect prices to rise, they may set higher prices for their goods and services or demand higher wages.
“Expectations of rising future inflation will feed into current inflation rates, keeping them high,” the IMF noted.
“The expectations channel is critical to whether central banks can achieve the elusive ‘soft landing’ of bringing inflation to target without recession,” it added.
In a separate report, the IMF said financial stability risks remained high, although concerns about stress in the banking sector had eased following the failure of three US regional banks earlier this year and the rescue takeover of Credit Suisse by UBS.
“The rapid rise in global bond yields in recent weeks provides a glimpse of the suddenness with which financial conditions can tighten,” the agency said in its Global Financial Stability Report.
“Also, while severe strains on the global banking sector have eased, there are now signs of trouble elsewhere as higher interest rates begin to bite, for example by reducing the repayment capacity of corporate and household borrowers.”
The IMF also said the prospect of “extremely long” interest rates is leading to a sharp decline in house prices in some countries.
Vulnerabilities in the commercial real estate sector “pose a significant risk to the financial sector,” it added, urging policymakers to assess a sharp fall in real estate prices. May affect financial institutions.
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