Worst is yet to come for global economy, warns IMF

The ‘worst is yet to come’ for the global economy as skyrocketing inflation and rising interest rates are fueling turmoil in financial markets, the International Monetary Fund (IMF) warned yesterday.

As the pound plummeted for the British currency on another bleak day, the Washington-based fund warned of a “disorderly price revision” on a large number of assets.

“There are certainly many vulnerabilities,” said Tobias Adrian, director of the IMF’s monetary and capital markets division. “If interest rates rise very quickly, these vulnerabilities are exposed.

“It’s hard to imagine a time when uncertainty was so great.

‘We have to go back decades to see so many conflicts in the world, and at the same time inflation is extremely high.’

The comments came as Britain struggles to contain extreme volatility in bond markets, sending the country’s pension sector into crisis and raising borrowing costs for government, businesses and households.

The Bank of England’s efforts to restore order threatened to be undermined last night when Governor Andrew Bailey said the emergency intervention in the gold markets would not be extended beyond Friday.

His warning sent the pound back below $1.10 and set the stage for further turmoil in currency and bond markets in the coming days.

At the same time, IMF deputy director Gita Gopinath said a third of the global economy will be in recession this year or next.

The IMF said a host of issues, from the war in Ukraine and China’s zero-covid policy to skyrocketing inflation and rising interest rates, meant the global economy would grow by just 2.7 percent next year after growing at 3.2 percent. . this year.

In Britain, production is expected to grow by a better-than-expected 3.6 percent this year, making it the fastest-growing economy in the G7 group for the second year in a row.

Bank of England’s efforts to restore order were undermined when Governor Andrew Bailey said intervention in gold markets would not be extended beyond Friday

But next year, growth will slow to just 0.3 percent.

This would only be ahead of Germany and Italy in the G7 – both countries will contract in 2023.

While the IMF said UK growth could be even stronger thanks to the mini-budget tax cuts, it warned that this would fuel inflation and extend the cost of living.

And it said there was a 15 percent chance that global growth would fall below 1 percent, resulting in a recession that “would be very, very painful for a lot of people.”

Pierre-Olivier Gourinchas, chief economist at the IMF, warned that 2023 could be the “darkest hour” for the global economy: “It really doesn’t look good.” He added: “The three largest economies, the United States, China and the euro area, will continue to stagnate.

In short, the worst is yet to come and for many people 2023 will feel like a recession.

“As the global economy heads for stormy waters, financial turmoil may break out, prompting investors to seek the protection of safe investments, such as US Treasuries, and push the dollar even further.”