IMF Lowers Global Growth Projections Amid Banking Worries

The International Monetary Fund (IMF) reduced its outlook for global economic growth this year, saying that “risks are heavily tilted to the downside.”

In its April World Economic Outlook, the IMF indicated that worldwide gross domestic product (GDP) will be up 2.8%, down from 3.4% last year and 0.1 percentage point lower than the group’s January prediction. It projects GDP rising 3% in 2024.

That forecast came a week after the IMF warned global GDP could grow by “around 3%” a year for the next five years, the worst medium-term outlook since 1990, and below the 3.8% average over the last 20 years.

The IMF noted that advanced economies will have an especially pronounced slowdown, to a growth rate of 1.3% this year from 2.7% in 2022. Emerging market and developing economies will dip only slightly, to 3.9% from 4%. 

Still Recovering

IMF Chief Economist Pierre-Olivier Gourinchas explained that the world economy is “still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties.” Gourinchas added that recession concerns have “gained prominence,” and stubbornly high inflation persists.

The IMF warned that with the “fog around current and prospective economic conditions thickening,” government policymakers will have a narrow path to follow to bring down prices while avoiding a recession and maintaining financial stability. However, it noted that as long as financial stress is not systematic, the first priority for central banks is fighting inflation. 

Analysts at economic consultancy Oxford Economics said the IMF's forecast “still looks too optimistic over the next two years," writing it would “underestimate the impact that tightening in financial conditions will have on advanced economies." They noted Oxford Economics' forecast of global growth would be published a day later.