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The World Economy is Heading Towards a New Recession: IMF

Recession

“We are seeing the materialization of the threats that we talked about in April,” Pierre Olivier Gourinchas, director of the IMF’s research department, told reporters in Washington.

According to him, not having time to recover from the pandemic, the global economy is experiencing several shocks at once: high inflation, especially in the United States and leading European countries, the subsequent tightening of monetary conditions, the slowdown in the Chinese economy, and the war in Ukraine.

An additional risk factor in the IMF is the possibility of a complete cessation of Russian gas supplies to Europe. “The forecast today looks much more gloomy than in April,” Gourinchas said. 

According to him, the world may soon be on the verge of a global recession. In the second quarter of this year, global production declined, primarily due to a  fall in China and Russia. Consumer activity in the US was lower than expected. 

This year, inflation is expected to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies (representing a 0.9 and 0.8 percentage point increase in the forecast, respectively).

The international group also warned of another problem that could emerge as the Federal Reserve raises interest rates. Higher rates are expected to further strengthen the U.S. dollar as investors plow into Treasury bonds that offer lucrative returns. The IMF said that inflation in emerging markets could be amplified as the appreciation of the dollar makes the imports that they buy with their local currencies more expensive.

Poor countries are already struggling to cope with a food crisis, as exports of grains and cooking oils from Russia and Ukraine have been disrupted by the war, fueling a surge in food costs and raising fears about the prospects of famine and social unrest.

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