Economic Counsellor of the IMF: „The worst is yet to come and, for many people, 2023 will feel like a recession”

One-third of the world economy will likely contract this year or next amid shrinking real incomes and rising prices. We estimate that there is about a one in four probability that global growth next year could fall below the historically low level of 2 percent.

an article written by Pierre-Olivier Gourinchas, the Economic Counsellor and the Director of Research of the IMF

The global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

Our global growth forecast for this year is unchanged at 3.2 percent, while our projection for next year is lowered to 2.7 percent—0.2 percentage points lower than the July forecast. The 2023 slowdown will be broad-based, with countries accounting for about one-third of the global economy poised to contract this year or next. The three largest economies, the United States, China, and the euro area will continue to stall. Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession.

In the United States, the tightening of monetary and financial conditions will slow growth to 1 percent next year. In China, we have lowered next year’s growth forecast to 4.4 percent due to a weakening property sector and continued lockdowns.

The slowdown is most pronounced in the euro area, where the energy crisis caused by the war will continue to take a heavy toll, reducing growth to 0.5 percent in 2023.

Almost everywhere, rapidly rising prices, especially of food and energy, are causing serious hardship for households, particularly for the poor.

Despite the economic slowdown, inflation pressures are proving broader and more persistent than anticipated. Global inflation is now expected to peak at 9.5 percent this year before decelerating to 4.1 percent by 2024. Inflation is also broadening well beyond food and energy. Global core inflation rose from an annualized monthly rate of 4.2 percent at end-2021 to 6.7 percent in July for the median country.

Our latest outlook also assesses the risks around our baseline projections. We estimate that there is about a one in four probability that global growth next year could fall below the historically low level of 2 percent. If many of the risks materialize, global growth would decline to 1.1 percent with quasi stagnant income-per-capita in 2023. According to our calculations, the likelihood of such an adverse outcome, or worse, is 10 percent to 15 percent.

Follow the link to see more details about the cost-of-living crisis and the effects of a strong dollar.

About the author

Pierre-Olivier Gourinchas is the Economic Counsellor and the Director of Research of the IMF. He is on leave from the University of California at Berkeley where he is the S.K. and Angela Chan Professor of Global Management in the Department of Economics and at the Haas School of Business. Professor Gourinchas was the editor-in-chief of the IMF Economic Review from its creation in 2009 to 2016, the managing editor of the Journal of International Economics between 2017 and 2019, and a co-editor of the American Economic Review between 2019 and 2022. He is on-leave from the National Bureau of Economic Research where he was director of the International Finance and Macroeconomics program, a Research Fellow with the Center for Economic Policy Research CEPR (London) and a Fellow of the Econometric Society.