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World economic forecast for 2023: IMF warns of recession in Germany

Gloomy prospects for 2023: Russia’s war of aggression and the pandemic pose huge problems for the global economy, including in Germany.

The global economy will continue to cool next year. A third of the world economy is projected to be in one by 2023

slipping into recession, according to the new world economic report from the International Monetary Fund, published in Washington. The IMF cited the sharp rise in prices after the Russian attack on Ukraine as the main reason, which is significantly reducing consumers’ purchasing power.

The global economy is facing enormous challenges as inflation is more stubborn than expected and China is also losing traction. “In short, the worst is yet to come and for many people 2023 will look like a recession,” said IMF economist Pierre-Olivier Gourinchas.

At the start of its member states’ consultations this week in the US capital, the IMF again lowered its forecast for 2023. According to this, the global economy is likely to grow only 2.7%, compared to 2, 9% expected in July. For 2022, an increase of 3.2 percent is still expected. Compared to 2021 with a growth of 6.0 percent, these are meager values.

The major economic regions are all weakening. Europe is particularly affected by the war in Ukraine. Gas prices have more than quadrupled since 2021. In the US, consumption is no longer driving the economy as usual, and in China, krona restrictions and tensions in the housing market are having a negative impact.

Unlike France, Spain and Great Britain, for example, the IMF expects a contraction in Germany’s economic output in 2023, specifically by minus 0.3%. The July estimate was therefore reduced by 1.1 percentage points.

Italy is also in danger of slipping into the red next year. The United States will grow by 1.6 and 1.0 percent respectively in 2022 and 2023. The estimate for this year has been significantly reduced. IMF experts are a little more pessimistic about China and now expect growth rates of 3.2 and 4.4 percent for 2022 and 2023, which is little by Chinese standards.

IMF chief economist Gourinchas pointed out that forecasts are still extremely uncertain. The future development of the global economy depends crucially on monetary policy, the course of the war in Ukraine and possible other disruptions caused by the pandemic, for example in China. “As the storm clouds build up, policymakers need to keep a steady hand,” Gourinchas said.

The IMF also predicts that inflation, which is currently at its highest for many decades in many countries, will peak towards the end of 2022. However, it will remain at a significantly higher level for a longer period of time. Global consumer prices are likely to rise by a whopping 8.8% in 2022 and again by 6.5% in 2023.

The previous estimates were then revised upwards again. 4.1% is therefore expected in 2024. Emerging and developing countries will be hit harder than industrialized countries. For them, the strong dollar, which is at its highest level in the past two decades, is a big deal.

The focus is currently on central banks, which have recently sought to ensure more stable price developments with unusually strong interest rate hikes. According to the IMF, there is a risk here of doing too little or too much. Excessively high interest rate hikes could stifle growth beyond measure, and hesitation for too long could not curb inflation.

It is also about the credibility of central banks. In the energy crisis, financial policy should primarily help weaker members of society for a limited period of time.

Gloomy prospects for 2023: Russia’s war of aggression and the pandemic pose huge problems for the global economy, including in Germany.

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