New Delhi (India), 12th April 2023: The International Monetary Fund warned on Tuesday that there is an increasing chance that the world economy would suffer a severe downturn due to concerns about the global banking system and worry that rising interest rates may force banks to reduce lending.
The warning comes after weeks of unrest in the global banking industry, which includes two bank failures in the US and the Swiss government-mediated takeover of Credit Suisse by UBS. Bank run worries have subsided in recent weeks, but there are still worries that future bank failures and tighter lending criteria may cause global economic growth to stagnate.
The IMF slightly lowered its 2023 growth prediction, from 2.9% in January to 2.8% in its most recent World Economic Outlook report. The IMF forecasted output at 3.4% last year, so this year’s growth is expected to be significantly slower.
Both the IMF and the World Bank have recently sounded the alarm about the possibility of an extended spell of economic stagnation. It is the IMF’s poorest medium-term growth prediction since 1990, with growth expected to stay around 3% over the following five years.
The IMF voiced optimism on Tuesday that a financial crisis might be avoided, but it also raised concerns over the fact that inflation was still high and that the world economy was still fragile and facing a “rocky” road. It implied that the likelihood of a so-called “hard landing,” in which economies all across the world enter a recession, was rising.
The IMF report said, “A hard landing, particularly for advanced economies, has become a much larger risk…The fog around the world economic outlook has thickened.”
The less than optimistic report comes as leading economists from around the world are gathering in Washington this week for the IMF and World Bank’s spring meetings.
The meeting is taking place at a time of great uncertainty as the Russian war in Ukraine drags on, prices remain stubbornly high around the globe, and the debt loads in developing nations fuel concerns about the potential of defaults.
