IMF Says Banking Troubles Create Headwinds for Global Economy

· Europe and US will Stagnate

· China to Accelerate to 5.2%

International lender sees growth slowing this year, then picking up

· Economic output is projected to increase 2.8% this year, a slowdown from 3.4% last year.

· The IMF said in its latest World Economic Outlook report.

· Global inflation to cool, with consumer prices rising 7% this year and 4.9% in 2024, compared with 8.7% in 2022.

· The IMF has cautioned against economic fragmentation, or the breakup of the world trading system into rival blocs comprising either the U.S. and its allies or China, Russia and their allies.

· Looking five years ahead, the IMF forecasts global economic growth of 3% in 2028, the lowest such forecast in decades.

· The eurozone’s economy is forecast to expand by just 0.8% this year, down from 3.5% last year. The U.K.’s economy is projected to shrink by 0.3% in 2023 after expanding by 4% in 2022.

· The U.S. economy is expected to grow 1.6% this year, down from 2.1% in 2022, the IMF said.

· China’s growth, meanwhile, is seen accelerating to 5.2% this year from 3% last year.

Global economic growth is cooling while facing risks from the volatile banking sector, high inflation and climbing interest rates, the International Monetary Fund said Tuesday.

Total economic output is projected to increase 2.8% this year, a slowdown from 3.4% last year, as nations continue recovering from slumps caused by the pandemic and the war in Ukraine, the IMF said in its latest World Economic Outlook report. Its new 2023 forecast was little changed—just 0.1 percentage point lower—from its January projection.

The multilateral financial organization also sees global growth accelerating to 3% next year, the report said, citing some encouraging signs.

China’s reopening after its long pandemic lockdowns is injecting vigor into the Asian economy. The U.S. and European economies see their growth supported by resilient consumer demand and strong job markets. Emerging markets are expanding faster than rich countries, and supply-chain crunches seen during the pandemic and following Russia’s invasion of Ukraine are unwinding.

Yet the risks to growth have grown significantly, IMF economists said, alluding to the banking system turmoil that erupted in March. The sudden, dangerous decline in confidence in the banking system resulted in the failure of two midsize U.S. banks and the forced acquisition of Credit Suisse Group AG by its longtime rival UBS Group AG.

Another major risk, he said, is persistent inflation, which could require central banks to raise interest rates beyond what is already projected. The IMF forecasts global inflation to cool, with consumer prices rising 7% this year and 4.9% in 2024, compared with 8.7% in 2022. But the organization projects a slower ebbing of underlying core inflation, which excludes volatile energy and food prices.

The economy, therefore, is entering a perilous phase where financial risks have risen while inflation isn’t contained, even as growth remains low by historical standards.

The IMF’s longer-term outlook remains dim. The global economy remains weighed down by the effects of the war in Ukraine and the growing rivalry between the U.S. and China. The IMF has cautioned against economic fragmentation, or the breakup of the world trading system into rival blocs comprising either the U.S. and its allies or China, Russia and their allies.

Looking five years ahead, the IMF forecasts global economic growth of 3% in 2028, the lowest such forecast in decades.

The global slowdown this year is led by advanced economies in Europe, according to the IMF. The eurozone’s economy is forecast to expand by just 0.8% this year, down from 3.5% last year. The U.K.’s economy is projected to shrink by 0.3% in 2023 after expanding by 4% in 2022.

The U.S. economy is expected to grow 1.6% this year, down from 2.1% in 2022, the IMF said.

China’s growth, meanwhile, is seen accelerating to 5.2% this year from 3% last year.