Can the Global Economy Avoid a Lost Decade?
The International Monetary Fund and the World Bank are now predicting a prolonged period of sluggish growth and declining investment. The coming downturn is not inevitable, but restoring global growth will be extremely challenging for two key reasons.
NEW YORK – The Spring Meetings of the World Bank and International Monetary Fund usually provide a platform for various organizations, policymakers, and commentators to reflect on the state of the global economy, offer assessments of the previous year’s developments, and forecast what lies ahead. This year’s meetings, which took place in Washington in April, were accompanied by grim predictions that underscored the growing likelihood of a prolonged global recession.
While many analysts previously assumed that the confluence of crises that the world has faced over the past three years – the COVID-19 pandemic, supply-chain disruptions, the war in Ukraine, and the resulting inflation crisis and financial turmoil – would have a significant but ultimately transitory effect on the global economy, new data suggest that the current economic upheaval will last longer than initially expected.
The IMF’s World Economic Outlook and Global Financial Stability Report suggest a difficult road ahead, warning that “the fog around the world economic outlook has thickened.” The rapid succession of large interest-rate hikes by the US Federal Reserve and other major central banks has caused public and private sector debts to increase to their highest levels in decades, enhancing the risk of financial instability. The world’s advanced economies, which grew by 2.7% in 2022, are projected to grow by just 1.3% this year. While the IMF expects Asia’s emerging and developing economies to expand by 5.3% in 2023 (compared to 4.4% last year), India’s growth forecast has been revised down to 5.9% (compared to a 6.8% growth rate in 2022).
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