Economy

IMF predicts ‘soft landing’ scenario amidst global economic slowdown


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The International Monetary Fund (IMF) has predicted a “soft landing” scenario for the global economy, despite ongoing challenges including the COVID-19 pandemic, Russia-Ukraine conflict, and China’s real estate crisis. This forecast was presented by Pierre-Olivier Gourinchas, chief economist at the IMF, during the earthquake-affected Marrakech IMF meeting on Tuesday.

The prediction is based on high employment levels and decreasing prices which are expected to prevent a severe contraction or mass unemployment. The term “soft landing” refers to a situation where inflation gradually decreases without a significant downturn in economic activity.

Gourinchas described the global economy as “limping along”, with medium-term growth expectations at their lowest in decades. The IMF forecasts global GDP growth of 3% in 2023 and 2.9% in 2024. Inflation is expected to drop from 8.7% in 2022 to 6.9% this year and 5.8% next year.

The U.S. economy is predicted to outperform its pre-pandemic trend with a growth rate of 2.1%. On the other hand, the eurozone is expected to face an output slowdown, with Germany likely to experience an economic contraction before rebounding next year.

The IMF report also highlighted the resilience of the global economy amidst various challenges such as cost-of-living issues, inflation risks, and stunted UK retail sales growth. The end of the Covid-19 global health emergency and eased conditions in US and Swiss financial sectors since April have been positive developments.

However, central banks are urged to maintain their current paths and adopt tighter policies for inflation control. There is little margin for error on the policy front as rates may stay high longer in many countries. Premature monetary policy easing could risk gains made so far.

Risks to the global economy include China’s real estate crisis and a potential surge in oil prices. Despite historically low unemployment rates and buoyant labor markets, there is scant evidence of a wage-price spiral with real wages still below pre-pandemic levels.

Lastly, the IMF chief expressed support for giving China greater voting rights, further emphasizing the changing dynamics of global economic leadership.

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