Higher Inflation Diminishes Outlook For The World Economy

The Fed will likely raise rates fast after last week’s terrible inflation numbers, and this might increase the U.S. currency, raising import and debt-service prices.

IMF Predicts The Worst Yet To Come

Key energy suppliers reduce supplies, raise costs, and slow economic development, notably in Europe. China’s consumer spending declined sharply, reflecting sluggish growth.

IMF Chief Executive Kristalina Georgieva cautioned Wednesday that “the worst has yet to come” Recessions threaten many economies. According to the IMF, America, Europe, and China will stop growing next year. 

2023 forecasts are 2.7%, down from 3.2% this year. Rising U.S. hyperinflation and the Fed’s response threaten many officials’ growth outlook.

In September, the U.S. buyer index rose 8.5%, and core prices rose 6.5%. It was the fastest speed in four decades, signals price pressures.

Core-CPI data keeps Fed on track to raise next month. The research may postpone further rate rises.

This year, Fed rate rises have bolstered the dollar and enticed investments in U.S. stocks. Many countries import and debt-service costs rise with a rising dollar. It has forced other national banks to raise rates to protect their currencies, postponing growth.

Barnabás Virág, Hungary’s Deputy Central Bank Governor, said the dollar’s strength continues to squeeze currencies.

He stated that the U.S. economy is resilient and calm yet has a strong labor market. 

Government May Raise Interest Rates

Retail sales in September were flat from July and up 6.2% compared to a year ago. According to the U.S. Department of commerce.

The IMF anticipates 1% growth after this year, dropping from 1.5% in the year. The next-year recession probability is 65%, up from 59% in July.

According to Indonesia’s finance minister, the Fed may raise interest rates further. The poor world economy, high-interest rates, and a strong currency affect all countries, said Sri Mulyani.

The Ukraine crisis has damaged the global economy, according to the IMF. It slowed food and fertilizer exports, hurting 346 million people. Russia halted natural gas to Europe, crippling companies and economies.

Many economists say a worldwide recession occurs when economic expansion falls below 1.1%. However, the World Bank anticipates about a 1.9% increase in 2023.

Last month, a U.K. tax-cut plan to encourage growth caused a bond selloff, requiring the BoE to intervene. The U.K. government repealed critical sections of the program Friday, partially because of market reaction.

Global economic officials are monitoring financial market forces because increasing interest rates might threaten financial stability. Wednesday was the Fed’s discounts window’s highest sum since July 2020. 

On Friday, Kansas City Federal Director Esther George said the economy is in shock. She said that too much haste might hurt the financial and economic markets.

John Waldron, Head of Goldman Sachs Group Inc., said financial and economic uncertainty might affect job decisions. He urged companies to recruit less and fire off some.

Second-quarter 2022 Covid-19 lockup regulations hindered China’s economy. China’s housing market is cooling. China’s downturn may change the global distribution network and trade.

Middle-income and low-income countries are more growth-vulnerable. 60% of the world’s impoverished countries are now under or near a debt crisis. Many are unable to meet financial obligations and face rising energy and food import costs.

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