Economics - IMF predictions for 2023 - They're not pretty

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IMF downgrades global economy outlook for 2023

Measures made around the world to curb post-pandemic inflation will make 2023

'feel like a recession'

The Associated Press · 

Posted: Oct 11, 2022 12:32 PM ET

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., in this 2018 file photo. On Tuesday, the IMF downgraded its 2023 outlook for the world economy. (Yuri Gripas/Reuters)

The International Monetary Fund downgraded its 2023 outlook for the world economy, suggesting that next year "will feel like a recession" for many thanks to central bank reactions around the world.   

The lending agency of 190 countries said Tuesday morning that global economic growth would be a meagre 2.7 per cent in 2023, down from the 2.9 per cent they'd estimated in July. For comparison, the world economy grew by six per cent in 2021. The IMF cited Russia's war in Ukraine, chronic inflation pressures, punishing interest rates and the lingering consequences of the global pandemic.

"The worst is yet to come," said IMF chief economist Pierre-Olivier Gourinchas.

The 2023 growth estimate in Canada thus shrunk to 1.5, down three-tenths of a percentage point from the last estimate made in July. Canada's growth estimate for 2022, meanwhile, fell to 3.3 per cent from July's 3.4 per cent. 

The IMF left unchanged the modest 2022 global growth estimate of 3.2 per cent.

Economies stalling

Next year's growth estimate for the United States — Canada's largest trading partner — shrunk to just one per cent. Their economy is stalling, along with those of China and Europe, said Gourinchas. 

The 19-country Euro-bloc will grow only 0.5 per cent in 2023 as it reels from the Russian invasion of Ukraine and resulting energy prices, predicted the IMF. 

China, a co-founding member of the IMF, was predicted to see the sharpest contraction of 3.2 per cent this year and 4.4 per cent in the next, down from 8.1 per cent in 2021. Business disruptions caused by Beijing's Draconian zero-COVID policy and crack-down on excessive real estate lending will be to blame, said Gourinchas.

Each country is squaring up against the consequences of the 2020 COVID-19 pandemic, which brought the world economy to a halt and necessitated massive government spending and low borrowing rates. Those measures fuelled a surprisingly quick and quality recovery from the pandemic recession. It comes, however, at a high cost. 

A new survey from the Angus Reid Institute suggests the vast majority of Canadians are spending less as prices rise — and most say interest rate increases will negatively affect their finances.

Central banks are today dramatically raising interest rates to stem inflation risk and ease consumer supply chain pressure. Canada's central bank raised its short-term rate five times so far throughout 2022. This risks a sharp economic slowdown and recession. 

Likewise, higher borrowing rates in the United States have supported global investment in the country and raised the value of the U.S. dollar, thus making U.S. exports more expensive and heightening inflation pressures world wide.

An overly aggressive U.S. central bank could "drive the world economy into an unnecessarily harsh contraction," said Maurice Obstfeld, a former IMF chief economist who now teaches at the University of California, Berkeley. 

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Widespread Economic Slowdown Across Europe with Italy Heading to ‘Zero Growth’

vittorio emanuele monument rome © pexels.com

Eurozone’s third-largest economy, Italy, can’t afford fiscal expansion at a time when its economic growth is heading to zero, Economy Minister Giovanni Tria said. He ruled out any possible changes to the government’s budget.

Italy’s central bank and the International Monetary Fund both estimated the country’s economy would expand by 0.6 percent this year. The European Commission’s forecast was more pessimistic, at just 0.2 percent. It said Italy was facing excessive economic imbalances and the policies of its government were making matters worse, posing a threat to Eurozone partners.

“We face a widespread slowdown in growth across Europe, and in Italy we are headed for zero” growth, Tria said at a conference in Florence. “Certainly we don’t have the room for expansionary measures,” he added.

Rome targets a fiscal deficit of 2.04 percent of gross domestic product this year, while analysts say the figure may be higher. In the fourth quarter of 2018, Italy plunged into technical recession as the economy contracted. At the moment, public debt sits at €2.3 trillion (US$2.6 trillion), or 131 percent of Italy’s GDP, which is way above the 60 percent EU ceiling.

According to Tria, Italian manufacturing exports suffered as a consequence of the slowing German economy. Europe’s leading economy, Germany, is struggling due to significantly weaker demand for its exports.

Italy’s Eurosceptic coalition government of the 5-Star Movement and the League parties lowered the deficit target after a protracted tussle with the European Commission. Rome has been clashing with Brussels over its big-spending budget in the past few months.

Last Thursday, Claudio Borghi, a leading member of the League party, said the Italian government could steeply raise the deficit next year to avoid hiking value-added tax.

European Commission President Jean-Claude Junker on Monday mocked the country’s government coalition. Junker said Brussels had “foreseen” that Italy’s economic growth would not be as outstanding as announced, and that he “isn’t sure” the country will crawl out of the financial crisis it plunged into more than 10 years ago.

One wonders how much American sanctions are affecting Germany's exports? Perhaps it is time for the rest of the world to stop supporting the myriad sanctions with which America is bullying the rest of the world, most of which are for American economic gain, not political reasons.

Canada is suffering from the loss of billions of dollars in the canola market to China because we arrested Huawei's CFO for violating an American sanction. IMHO that was a huge mistake that should never have happened. 

The rest of the world needs to tell President Trump that American sanctions are America's problem, not a global problem.