Risk of ‘hard landing’ for global economy has ‘risen sharply,’ IMF warns

The IMF has dimmed its outlook for the world economy this year amid high inflation, rising interest rates and uncertainties resulting from the collapse of two big American banks.

The outlook for the world economy this year has dimmed in the face of chronically high inflation, rising interest rates and uncertainties resulting from the collapse of two big American banks.

That’s the view of the International Monetary Fund, which on Tuesday downgraded its outlook for global economic growth. The IMF now envisions growth this year of 2.8%, down from 3.4% in 2022 and from the 2.9% estimate for 2023 it made in its previous forecast in January.

The fund said the possibility of a “hard landing,” in which rising interest rates weaken growth so much as to cause a recession, has ”risen sharply,” especially in the world’s wealthiest countries. Those conditions are also increasing the risks to global financial stability, the fund warned.

“The situation remains fragile,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters Tuesday. ”Downside risks predominate.”

The IMF, a 190-country lending organization, is forecasting 7% global inflation this year, down from 8.7% in 2022 but up from its January forecast of 6.6% for 2023.

“Inflation is much stickier than anticipated even a few months ago,” Gourinchas wrote in the IMF’s latest World Economic Outlook.

Persistently high inflation is expected to force the Federal Reserve and other central banks to keep raising rates and to keep them at or near a peak longer to combat surging prices. Those ever-higher borrowing costs are expected to weaken economic growth and potentially destabilize banks that had come to rely on historically low rates.

Already, Gourinchas warned, higher rates are “starting to have serious side effects for the financial sector.”