The global economy is past the point of being able to avoid a sharp recession, warns the watchdog of the global financial system. The IMF World Economic Outlook was released this week, forecasting that global real gross domestic product (GDP) will slow sharply in 2023. A hard landing is now expected, with advanced economies likely to get hit the worst. The agency hasn’t shared such a weak medium-term forecast since Law & Order was first aired.
The weak economy in 1990 had nothing to do with Law & Order, just highlighting how long ago it was. Dun dun.
The Global Economy Is Heading For A Hard Landing
A soft landing for the global economy is now unlikely, according to the latest IMF forecast. “Tentative signs in early 2023 that the world economy could achieve a soft landing—with inflation coming down and growth steady—have receded amid stubbornly high inflation and recent financial sector turmoil,” said the agency.
Global real GDP growth is forecast to fall from 3.4% growth in 2022, to just 2.8% in 2023. Next year a mild bounce is expected to push growth back to 3.0%, but it appears to be a plateau. They note the same level of growth is expected 5-years down the road as well. “… The lowest medium term forecast in decades,” reads the forecast notes.
High Inflation Won’t Be Tamed Before 2025
The weakest GDP growth since 1990 is primarily attributed to the inflation crisis. Although inflation is moderating, it’s just not cooling fast enough and in the right places. Inflation has been primarily reduced through lower food and commodity prices, but core inflation (inflation minus those two) has been sticky. The earliest inflation is expected to moderate will be 2025, so buckle up.
Central banks have been able to achieve some success in cooling inflation. Unfortunately, higher rates have produced a mild (so far) banking crisis. As a result, they don’t see economies having the ability to keep reducing inflation via higher rates for long enough.
Global Economic Risks Are Slanted To The Downside
The IMF warns the risk is slanted to even further downside. Their baseline forecast applies if inflation is contained and the banking crisis is contained. Significant progress is being made when it comes to inflation, but bank issues are a wild card. Containment measures are working as intended, but they always do before they don’t.
If further financial sector stress can’t be contained, global real GDP falls to 2.5% growth. They see this being the worst recession since 2001, excluding the pandemic and 2009 financial crisis. It’s not clear why they chose to exclude those two events in their analysis, but they were “special” recessions with induced shocks. The forecast recession resembles a more textbook economic recession, caused by exhausted demand and leverage.
Advanced Economies To Be Hit The Hardest This Recession
Surprisingly, advanced economies are the weight on the global forecast. Real GDP growth is forecast to fall from 2.7% in 2022, to just 1.3% in 2023. Unlike the global forecast, no major bounce follows next year, inching its way to just a 1.4% increase. The G7 (+1.1%) and Euro Area (+0.8%) are the major drag on when it comes to advanced economies in the coming months.
Emerging Market & Developing Economies Will Come Out Stronger
Emerging markets and developing economies are forecast to weather this storm well. Real GDP growth is forecast to see a slight reduction from 4.0% in 2022 to 3.9% in 2023. By next year, they’re expected to bounce back even better with 4.2% growth in 2024. This is in stark contrast to how emerging and developing countries were impacted by the Global Financial Crisis and pandemic, where they were hardest hit.
Emerging and developing economies are traditionally smaller and thus easier to realize real GDP growth. Now those economies include countries like China and India, with the growth likely to improve baseline conditions towards advanced economy standards.
Policymakers will face difficult decisions in the coming months. An excess of easy money during the pandemic provided inflationary pressures on top of supply chain-related issues. Now with a new recession fast approaching, the options for softening the blow are limited. They can’t just helicopter easy money without undermining the progress made by central banks in recent months.
“A hard landing — particularly for advanced economies — has become a much larger risk. Policymakers may face difficult trade-offs to bring sticky inflation down and maintain growth while also preserving financial stability,” said the IMF.
We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.
Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.
That’s right these weasels created the problems we’re all facing. Now they’re telling us how bad it will be from the problems they made. How nice of them.
So I presume this is bullish for Toronto real estate?
Advanced economies have been in the negative year over year in real terms since 2008, including Canada. America edged out with some growth, New Zealand as well. Let’s finally admit we’ve been in a decade + depression. The early 2010’s commodities boom prevented Canada from being worse off than now but the Americans killed off Canadian oil and minerals to benefit themselves at the expense of Canadians. What happened to free trade?
GOOD RIDDANCE LOSERS
NEXT TIME COOL YOUR JETS AND WATCH YOUR SPENDING
Canada MUST support its people and lower rates to more normal levels.
Rates should never have been raised above 1%.
LOL, go away realtor! Your motives are so blatantly transparent – low interest rates encourage sales and that’s how realtors make money!
Must suck to be you now that interest rates are slightly more *normal* again – have you ever looked up historical interest rates? This is not high!
Real interest rates never should have become negative – BoC (and the Fed) have caused the current debt disaster awaiting this country. But the solution is not to set interest rates abnormally low again! You’re just going to have to tough it out.
You can’t cure debt with more debt.
Lol you think less than 1% is normal??? Let me guess you have a car and home you can’t afford….
Less than 1% rate is completely abnormal and causes irresponsible spending. It’s a tactic used to stimulate an economy short term after a depression. Not for more than a decade. Expect rates to exceed 10% if you really want inflation to end. Back in the 1980 crash rates hit 20%.
“Rates shouldn’t have been raised over 1%” tell me you know nothing about economics without telling me you know nothing about economics.
Can you make some suggestions for investors?
This information is great, but I can’t do anything practical with it.
LOL, Scott Henderson you must be a realtor! Your motives are transparent – low interest rates encourage sales and that’s how realtors make money! You mean Canada must support its realtors? Because high inflation sure isn’t supporting most Canadians!
Interest rates are just slightly more *normal* again – have you looked up historical interest rates? This is not high!
Real interest rates never should have become negative – BoC (and the FED) have caused the current debt disaster awaiting this country. But the solution is not to set interest rates abnormally low again! You’re just going to have to tough it out.
You can’t cure debt with more debt.