The International Monetary Fund warned Tuesday the risk of a recession has grown for advanced economies in the wake of bank failures in the U.S. and Europe while slightly lowering its outlook for global growth this year.
The IMF projects the global economy will expand at 2.8% this year, a hair lower than its January estimate of 2.9%.
The new forecast comes after IMF Managing Director Kristalina Georgieva said last week during a speech in Washington that global growth will expand less than 3% this year, citing rising geo-political tensions and inflation.
In Tuesday’s report, the IMF warned that there’s significant risk that recent banking system turbulence could spread to the broader economy and hurt business and consumer confidence.
“A hard landing— particularly for advanced economies—has become a much larger risk,” according to the report.
Overall, the IMF put the probability that global growth falls below 2% this year at 25% – an outcome that’s only happened five times, including during the financial crisis and the pandemic.
“Recession concerns have gained prominence, while worries about stubbornly high inflation persist,” said the report.
Growth in advanced economies is projected to decline by half this year to 1.3%, before rising to 1.4% next year. About 90% of advanced economies are projected to see growth drop this year.
Global headline inflation is estimated to drop to 7% this year from 8.7% in 2022, as oil prices fall and higher interest rates slow inflation. Meanwhile, core inflation, which strips out volatile food and energy prices, is expected to decline more gradually, ticking down just 0.2 percentage point from last year to 6.2%.
The IMF said policymakers have a narrow path to walk to bring down inflation while avoiding a recession and maintaining financial stability.
The report also said that growth is projected to rise to 3% next year and remain at that level for the next five years. That marks the lowest medium-term growth forecast since 1990 and reflects an expected decline in population growth.
During the two pre-pandemic decades — 2000–2009 and 2010–2019 — world growth averaged 3.9% and 3.7% a year, respectively.
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