Global Economy Entering “Perilous Phase”?

The outlook for the world economy this year has dimmed in the face of chronically high inflation, rising interest rates and uncertainties resulting from the collapse of two big American banks. That's the view of the International Monetary Fund (IMF).

The IMF now envisions growth for 2023 at 2.8 per cent, down from 3.4 per cent in 2022 and from the 2.9 per cent estimate for 2023 made in its previous forecast (in January). The global economy is "entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner."

Source: https://en.wikipedia.org

The possibility of a "hard landing," in which rising interest rates weaken growth so much as to cause a recession, has "risen sharply," especially in the world's wealthiest countries. Those conditions are also increasing the risks to global financial stability, the fund warned.

The IMF is forecasting 7 per cent global inflation this year, down from 8.7 per cent in 2022 but up from its January forecast of 6.6 per cent for 2023. Persistently high inflation is expected to force the US Federal Reserve and other central banks to keep raising rates and to keep them at or near a peak longer to combat surging prices.

Those higher borrowing costs are expected to weaken economic growth and potentially destabilise banks that had come to rely on historically low rates.

The fund foresees a 25 per cent likelihood that global growth will fall below 2 per cent for 2023. That has happened only five times since 1970, most recently when COVID-19 derailed global commerce in 2020.

The IMF also envisions a 15 per cent possibility of a "severe downside scenario," often associated with a global recession, in which worldwide economic output per person would shrink.

For Malaysia, growth has been forecasted between 4% - 4.5% depending on who you talk to. That’s “suppressed” growth, because we have not put in place structural reforms to unleash private sector initiatives. Meanwhile, we grapple with high public debt to GDP, cost of living, low wages, corruption, disincentives from ‘red-tape’/bureaucracy and political rhetorics of all hues. Focus and reforms – no matter how small – are necessary for GDP to fly!

Reference:

Global economy entering “perilous phase”, warns IMF, www.9news.com.au/ Associated Press, 12 April 2023