Ahead of G20, IMF Warns of Worsening Global Economy

Global economic conditions continue to deteriorate, the International Monetary Fund reiterated Sunday, driven by a slew of ongoing challenges crimping manufacturing and services output.

In a report prepared for the Group of Twenty's annual summit in Indonesia later this week, the IMF noted that recent economic indicators from G20 countries reinforce its decision last month to lower its 2023 global growth forecast to 2.7% from 2.9%.

Interest rate hikes to combat surging inflation, the Russia/Ukraine war, China's Covid-19 pandemic lockdowns and supply chain disruptions all remain hurdles for global economic growth, the IMF said.

"There has been a steady worsening in recent months for purchasing manager indices that are tracking a range of G20 economies," the IMF said. "Readings for a growing share of G20 countries have fallen from expansionary territory earlier this year to levels that signal contraction. That is true for both advanced and emerging market economies, underscoring the slowdown's global nature."

In particular, recent data point to weakness in Europe, the IMF said, while weakening investment, industrial production and retail sales data reflect China's persistent pandemic lockdowns and struggling real estate sector.

The IMF stressed that global policymakers should remain vigilant in fighting inflation and reducing government debt burdens, even as such actions pressure economic activity in interest-rate sensitive sectors, such as housing.

The IMF said that the global macroeconomic policy environment remains "unusually uncertain," a reality mirrored in global financial markets throughout 2022.

The S&P 500 Index in the first nine months of the year fell 24%. Only five full calendar years have had worse annual returns -- three years in the Great Depression plus 1974 and 2008, when the global financial crisis hit.

Meanwhile, global commodity prices surged early this year at the onset of the war but have subsequently declined amid mounting interest hikes by global central banks. Those rate hikes have pummeled global bond markets, as well. The Bloomberg U.S. Aggregate Index fell 11% in the first nine months of the year; bonds have not posted double-digit losses in a single calendar year since 1931, according to data from NYU.