The world economy is “entering a perilous phase”, with global inflation set fall more slowly than expected a few months ago, the International Monetary Fund (IMF) has warned.
“A hard landing – particularly for advanced economies – has become a much larger risk,” it said.
“Tentative signs” in early 2023 that the world economy could achieve a soft landing have now receded amid “stubbornly high” inflation and recent turmoil in the financial sector, according to a new global economic outlook published on Tuesday.
“Inflation is much stickier than anticipated even a few months ago,” IMF economic counsellor Pierre-Olivier Gourinchas writes in the report.
“More than ever, policymakers will need a steady hand and clear communication.”
The IMF made a modest downgrade to its forecasts for global growth this year, predicting that growth will bottom out at 2.8 per cent this year before rising to 3 per cent in 2024.
These growth rates are just 0.1 percentage points lower than projections made by the organisation in January.
But the global rate of inflation, which hit 8.7 per cent last year, will only soften to 7 per cent this year and 4.9 per cent in 2024, it said.
Underlying, or core, inflation is “likely to decline more slowly”, it added.
The IMF cautioned that risks to its outlook are “heavily skewed to the downside” with the “chances of a hard landing having risen sharply”.
Mr Gourinchas said the global economy was “entering a tricky phase” in which growth remains “lacklustre by historical standards” at the same time that financial risks have increased and inflation “has not yet decisively turned the corner”.
Although the slowdown is especially pronounced in advanced economies, the IMF expects the real gross domestic product (GDP) of the Irish economy to expand 5.6 per cent this year, followed by 4 per cent growth next year.
In the euro area, however, growth of just 0.8 per cent is expected this year, with a 1.4 per cent expansion pencilled in for 2024. In the UK, real GDP is expected to decline 0.3 per cent in 2023, before rising 1 per cent next year.
Mr Gourinchas said some of the recent slowdown in the world economy may reflect “more ominous forces” such as the scarring impact of the pandemic, a slower pace of structural reforms and the rising threat of geoeconomic fragmentation, leading to more trade tensions.
“A fragmented world is unlikely to achieve progress for all or to allow us to tackle global challenges such as climate change or pandemic preparedness. We must avoid that path at all costs.”
