IMF warns deeper financial turmoil would slam global growth
The International Monetary Fund on Tuesday trimmed its 2023 global growth outlook slightly as higher interest rates cool activity but warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.
The IMF said in its latest World Economic Outlook report that banking system contagion risks were contained by strong policy actions after the failures of two US regional banks and the forced merger of Credit Suisse. But the turmoil added another layer of uncertainty on top of stubbornly high inflation.
IMF chief economist Pierre-Olivier Gourinchas said central bank financial stability actions should not take precedence over moves to calm inflation -- unless a severe financial crisis occurs.
Gourinchas told a news conference that there could be situations where near-term stability risks could take precedence, such as a crisis that moves beyond the severe adverse "risk-off" scenario in the IMF's World Economic Outlook.
"It doesn't mean that you would abandon any nominal anchor but it means that in the near term, you would have to put financial stability first," Gourinchas said.
The IMF is now forecasting global real GDP growth at 2.8% for 2023 and 3.0% for 2024, marking a sharp slowdown from 3.4% growth in 2022 due to tighter monetary policy.
Both the 2023 and 2024 forecasts were marked down by 0.1 percentage point from estimates issued in January, partly due to weaker performances in some larger economies as well as expectations of further monetary tightening to battle persistent inflation.
The IMF's US outlook improved slightly, with growth in 2023 forecast at 1.6% versus 1.4% forecast in January as labour markets remain strong.
Reuters
