Is the world at large staring at a recession?

economy

by 5paisa Research Team Last Updated: 2022-10-07T10:03:40+05:30

The International Monetary Fund will next week downgrade its forecast for 2.9% global growth in 2023, Managing Director Kristalina Georgieva said on Thursday, citing rising risks of recession and financial instability.

Georgieva said the outlook for the global economy was "darkening" given the shocks caused by the COVID-19 pandemic, Russia's invasion of Ukraine and climate disasters on all continents, and it could well get worse.

What more has the IMF chief said?

"We are experiencing a fundamental shift in the global economy, from a world of relative predictability ... to a world with more fragility - greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters," she said in a speech at Georgetown University.

Georgieva said the old order, characterized by adherence to global rules, low interest rates and low inflation, was giving way to one in which "any country can be thrown off course more easily and more often."

She said all of the world's largest economies - Europe, China and the United States - were now slowing down, which was dampening demand for exports from emerging and developing countries, already hit hard by high food and energy prices.

The IMF estimates that countries accounting for about one-third of the world economy will see at least two consecutive quarters of contraction this year or next, Georgieva said.

"And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices," she said.

Overall, the IMF expects global output to shrink by $4 trillion between now and 2026. That is roughly the size of the German economy and amounts to a "massive setback," she added.

Is this the first downward revision by the IMF?

Not really. This is the fourth time the IMF would be downgrading its economic outlook for the world at large. 

But it would leave its current forecast for 3.2% growth in 2022 unchanged, she said, and gave no number for the new 2023 forecast.

Are countries like India already beginning to feel some of the effects of this impending showdown?

Well, yes, especially if the latest services activity data is anything to go by. 

India’s services activity expansion fell to a six-month low in Sept­ember as new business inflows and output increased at the slowest rates since March, amid inflationary pressures and competitive conditions that, in turn, dampened job creation.

The Purchasing Managers’ Index (PMI) for the services sector released by S&P Global dipped to 54.3 in September, from 57.2 in August, as weak external demand weighed on overall sales, with international orders declining further during the month. A print above 50 in the survey denotes expansion. Below that mark, it suggests contraction in services activity.

What more has the PMI survey showed?

Softer increases in output and new business were seen in each of the four broad areas of the services economy. In both cases, the fastest expansions were seen in consumer services and the slowest in transport, information and communication, the survey showed.

What have other agencies said on this?

The Organization for Econ­omic Co-operation and Develo­pment (OECD) and S&P last week kept their growth forecasts for India unchanged at 6.9 per cent and 7.3 per cent, respectively, for FY23. They had highlighted the growing downside risks.

“Softer external demand is a factor in India’s projected slowdown from 8.7 per cent annual growth in 2021-22 to around 7 per cent in FY23 and around 5.75 per cent in 2023-24. However, this still represents rapid growth in the context of a weak global economy,” OECD said in its interim Economic Outlook.

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