IMF Warns of Weakest Economic Growth in Over 30 Years

IMF Managing Director Kristalina Georgieva at the IMF headquarters in Washington, on Oct. 10, 2022. (Drew Angerer/Getty Images)

The International Monetary Fund (IMF) has warned that global economic growth over the next five years will be the weakest in more than three decades, with China among the nations propping up the world economy.

IMF managing director Kristalina Georgieva issued the warning in a speech in Washington on April 6, when she cautioned that the path ahead—particularly the path back to robust growth—is “rough and foggy” following the COVID-19 pandemic, Russia’s invasion of Ukraine, further monetary tightening, and the current cost-of-living crisis across the globe.

She noted that global growth dropped by almost half, from 6.1 to 3.4 percent, in 2022 following Putin’s war against Ukraine and what she said were its “wide-ranging consequences,” adding that the slowdown has continued into this year.

“Despite surprisingly resilient labor markets and consumer spending in most advanced economies, and the uplift from China’s reopening, we expect the world economy to grow less than 3 percent in 2023,” Georgieva said.

The IMF expects global growth to remain at that figure over the next five years, which is the agency’s lowest medium-term growth forecast since 1990, and below the average of 3.8 percent from the past two decades.

“This makes it even harder to reduce poverty, heal the economic scars of the COVID-19 crisis, and provide new and better opportunities for all,” Georgieva said.

China, India Leading Global Growth

The IMF in January said it estimated 2.9 percent global growth this year, which would then rebound to 3.1 percent in 2024. That estimate was 0.2 percent higher than previously forecast in October.

In delivering January’s estimate, the IMF said it projects that India and China would contribute half of the global growth this year, compared to just a tenth for the United States and eurozone combined.

The IMF forecasts 5.2 percent GDP growth in China this year, an increase of more than 2 percent from last year. For India, the agency anticipates growth of 6.1 percent.

Georgieva reiterated that view on Thursday, adding that around 90 percent of advanced economies are expected to see a decline in their growth rate this year; pointing to higher interest rates bringing down demand in the United States and Europe

“Strong and coordinated monetary and fiscal policy actions over the past years prevented a much worse outcome. But with rising geopolitical tensions and still-high inflation, a robust recovery remains elusive. This harms the prospects of everyone, especially for the most vulnerable people and countries,” the IMF chief said.

Georgieva also weighed in on the recent collapse of both Silicon Valley Bank and Signature Bank in the United States and the collapse of Credit Suisse in Switzerland, which has put pressure on financial systems across the globe.

Job Growth Slows

Last month, the IMF managing director warned that the recent banking turmoil meant that risks to global financial stability have increased.

However, on Thursday, the IMF chief said that while the failures of the banks exposed “risk management failures” and “supervisory lapses,” they have ultimately shown how far the banking sector has come since the global financial crisis of 2008–09.

She did, however, acknowledge that there may still be hidden “vulnerabilities” within the banking system.

Despite the warning over weak global economic growth, Georgieva said central banks should continue to use interest rates to fight inflation alongside financial policies that will ensure financial stability.

The policy-making Federal Open Market Committee (FOMC) voted in March to raise the benchmark federal funds rate by 25 basis points, to a target range of 4.75–5.00 percent, and is widely expected to raise it by another 25 basis points in May, when the FOMC is next scheduled to meet.

That rise will likely come despite jobs growth slowing in March, according to data published by the Bureau of Labor Statistics.

That data showed that the U.S. economy added just 236,000 new jobs, missing out on the market estimate of 238,000, in a sign that the economy is feeling the effects of the central bank’s interest-rate increases.

Chris Becker, senior economist at Groundwork Collaborative, told The Guardian that the impacts of the Fed’s “unrelenting” interest-rate hikes are now apparent.

“Job growth is slowing, and unemployment insurance claims are up, now breaking 200,000 a week,” said Chris Becker, senior economist at Groundwork Collaborative. “But the labor market is the wrong target for the Fed because workers and their wages have not driven inflation—supply disruptions and corporate profits have. Additional rate hikes will only edge us closer to a painful, avoidable recession.”