Global Economy Faces Headwinds From Banking Troubles, Says IMF

It is predicted that growth will slow this year but will pick up next year according to an international lender

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According to the International Monetary Fund, world economic growth is cooling while the banking sector continues to be volatile, inflation is high, and interest rates are rising, as a result of rising risks.

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The latest World Economic Outlook report from the IMF estimates that economic output will increase by 2.8% this year, a slight slowdown from the 3.4% increase last year, as nations continue to recover from slumps that were caused by pandemics and Ukrainian wars. Its new 2023 forecast was little changed from its January forecast—it was only 0.1 percentage point lower than its January forecast. 

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According to the report published on Tuesday by the multilateral financial organization, there is some encouraging indication that the global economy will expand by 3% next year.

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The Chinese economy is experiencing an influx of vigor as a result of the nation's reopening after its long pandemic lockdown. There is a strong job market in the United States and Europe, as well as resilient consumer demand, which is supporting their growth. With the rapid growth of emerging markets and supply-chain crunches seen during and following the pandemic and Russia's invasion of Ukraine, supply-chain constraints in developed countries are also being eased.  

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The IMF's economists said that despite the recent turmoil that erupted in the banking system in March, the risks to growth have been escalating significantly. In the wake of the sudden, devastating decline in confidence in the banking system, two medium-sized U.S. banks failed, and UBS Group AG, the longtime rival of Credit Suisse Group AG, was forced to acquire it by its longtime rival Credit Suisse Group AG. 

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Several countries have faced financial challenges recently, which are casting a shadow on the outlook for the foreseeable future. Pierre-Olivier Gourinchas, the IMF's research director, says that there are many downside risks ahead in the coming months and years.

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He also said that persistent inflation poses another major risk to the economy, which would cause the central banks to raise interest rates beyond what has already been forecast. Against the backdrop of the IMF's forecast of a global slowdown in inflation, the IMF anticipates a 7% rise in consumer prices this year and a 4.9% increase in 2024, compared to 8.7% in 2022. Nevertheless, the organization projects that underlying core inflation will continue to decline for a longer period of time, which excludes the volatile prices of food and energy. 

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During the current economic crisis, the economy is in a perilous phase where financial risks have increased at the same time that inflation remains out of control, despite the fact that growth is low compared to historical standards. 

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There is a dim outlook for the economy in the long run according to the IMF. As the war in Ukraine and an inevitable rivalry between the U.S. and China continue to weigh heavily on the global economy, the effects of the war remain a drag on the global economy. It has been strongly recommended by the International Monetary Fund (IMF) that the world trading system not break up into rival blocs, which either consists of the United States and its allies, or of China, Russia, and their allies.

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There is a low expectation for growth in the global economy in the next five years, a forecast that would be the lowest in decades, according to the International Monetary Fund. 

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Despite this, Kristalina Georgieva, the director of the International Monetary Fund, said Monday as she kicked off the spring meetings of the IMF and World Bank that there is no hope of meeting the aspirations of people, particularly poor people, around the world as well as people in poor countries. 

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As reported by the International Monetary Fund, advanced economies in Europe are leading the global slowdown this year. A slightly lower 0.8% growth rate is predicted for the eurozone economy this year, compared to a 3.5% growth rate last year. As a result of the United Kingdom's economic growth of 4% in 2022, the economy is projected to shrink by 0.3% in 2023.

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IMF analysts predict that the U.S. economy will grow by 1.6% this year, compared with 2.1% in 2022, down from 2.1% in 2017.

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It is expected that China will grow by 5.2% this year from 3% last year, which is an increase from the 3% it recorded in 2016. 

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