The world economy is facing its weakest period of growth since the 1990s in the next five years due to problems triggered by the pandemic and political tensions, International Monetary Fund (IMF) has said.
Speaking at the ongoing annual meeting in Washington DC, where she released the latest World Economic Outlook, IMF boss Kristalina Georgieva said the situation might persist for the next five years.
A severe slowdown in the global economy last year following the Covid-19 pandemic and the conflict in Ukraine is set to continue in 2023 and could persist for the next five years, she warned.
Global GDP will grow at about three percent over the next half-decade compared to an average of 3.8 per cent seen in the past 20 years, representing the worst economic performance in more than three decades.
The IMF is now forecasting global real GDP growth at 2.8 per cent for 2023 and three per cent for 2024, marking a sharp slowdown from 3.4 per cent growth in 2022 due to tighter monetary policy.
Last year, global growth almost halved following an initial post-pandemic rebound in 2021, sliding from 6.1 per cent to 3.4 per cent, Georgieva said.
Up to 90 per cent of advanced economies are likely to experience a decline in their growth rate this year, she warned, with activity in the US and the Eurozone hit by higher interest rates.
“With rising geopolitical tensions, with inflation still running high, a robust recovery remains elusive,” Georgieva said.
She added that this harms the prospects of everyone, especially for the most vulnerable people and most vulnerable countries.
The IMF head warned against economic fragmentation stemming from geopolitical tensions and urged countries to take action to boost global productivity.
According to Georgieva, soaring inflation facing most of the world’s wealthy nations will force central banks to continue interest-rate hikes, adding pressure to the banking industry despite financial uncertainty following recent turmoil with lenders in the US and Switzerland.
The lender has raised its 2023 core inflation forecast to 5.1 per cent, from a 4.5 per cent prediction in January, saying it had yet to peak in many countries despite lower energy and food prices.
"Our advice is for monetary policy to remain focused on bringing down inflation," IMF chief economist Pierre-Olivier Gourinchas said.
IMF has asked economies to remain vigilant and more agile than ever, adding that regulators may come across more complicated choices to protect the financial system amid persistent inflation and challenges in the banking sector.
According to the report, long-term disintegration in global trade such as restrictions on capital flows and international cooperation, as well as curbs on migration, could slash global GDP by up to seven per cent or $7 trillion.
This is the equivalent of the combined annual production of Germany and Japan.
The IMF forecasts do not include the impact of a recent oil output cut by OPEC+ countries that have caused oil prices to spike. It assumes an average 2023 global oil price of $73 per barrel - well below Monday's $84 Brent crude futures price, but Gourinchas said it was unclear if this level could be sustained.
For every 10 per cent rise in the price of oil, IMF models show a 0.1 percentage point reduction in growth and a 0.3 percentage point increase in inflation.