IMF Managing Director Kristalina Georgieva. Carsten Koall/Getty Images
- The global economy will see the slowest growth in three decades over the next five years, the IMF chief said on Thursday.
- Higher interest rates as central banks battle hot inflation weigh on demand in advanced economies.
- Global GDP is likely to remain around 3%, the lowest medium-term growth forecast since 1990.
The global economy will expand at its weakest pace in more than 30 years over the next five years, with advanced economies set for sluggish activity amid higher interest rates, the head of the International Monetary Fund said on Thursday.
Global gross domestic product should hover around 3%, the lowest medium-term growth forecast since 1990, IMF Managing Director Kristalina Georgieva said in a speech in Washington.
This rate would be well below the average of 3.8% over the past two decades.
For 2023, he envisages growth of less than 3%. In January, the IMF forecast growth of 2.9% for this year. The economy grew by 3.4% in 2022. The IMF will publish its World Economic Outlook next week.
The bleak growth outlook comes despite labor markets having been “surprisingly resilient,” consumer spending has been strong in most advanced economies and China is reopening its economy.
The emerging countries in Asia are seen as a special “ray of hope” for growth dynamics. The IMF expects India and China to account for half of global growth in 2023.
“So far we’ve proven to be resilient climbers,” she said. “But others face a steeper climb. Economic activity is slowing in the United States and the euro zone, where higher interest rates are weighing on demand,” she said, adding that about 90% of advanced economies are likely to see their growth rate slow this year.
The Federal Reserve, the European Central Bank and the Bank of England are among the central banks that have raised interest rates to combat decades of inflation in their respective economies. The benchmark interest rate in the US is 4.75% to 5%, having started at zero to 0.25% in March 2022.
While higher interest rates hurt demand, central banks must continue to fight inflation and ensure financial stability, Georgieva said. Core inflation is still “stubbornly high” in part because many countries have tight labor markets.
“There can be no robust growth without price stability, nor without financial stability. And today, both need the attention of policymakers,” she said.
The fight against inflation has become “more complex” due to the stress hitting the banking sector in the US and Switzerland. Silicon Valley Bank and Signature Bank failed and were seized by US regulators last month, and troubled lender Credit Suisse underwent an emergency takeover by UBS with the backing of Swiss regulators.
The restructuring is a reminder that moving quickly from a prolonged period of low interest rates and ample liquidity to much higher interest rates and tight liquidity is difficult, the IMF chief said.
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