'The worst is yet to come,' says International Monetary Fund Chief Economist Pierre-Olivier Gourinchas.
, which could push the global economy into an “unnecessarily severe recession” and cause disruptions to financial markets and pain for developing countries. But it pointed squarely at controlling inflation as the bigger priority.
“The hard-won credibility of central banks could be undermined if they misjudge yet again the stubborn persistence of inflation,” Gourinchas said. “This would prove much more detrimental to future macroeconomic stability.” The Fund forecast headline consumer price inflation peaking at 9.5% in the third quarter of 2022, declining to 4.7% by the fourth quarter of 2023.A “plausible combination of shocks” including a 30% spike in oil prices from current levels could darken the outlook considerably, the IMF said, pushing global growth down to 1% next year – a level associated with widely falling real incomes.
Other components of this “downside scenario” include a steep drop-off in Chinese property sector investment, a sharp tightening of financial conditions brought on by emerging market currency depreciations, and labor markets remaining overheated resulting in lower potential output. The IMF put a 25% probability of global growth falling below 2% next year – a phenomenon that has occurred only five times since 1970 – and said there was a more than a 10% chance of a global GDP contraction.These shocks could keep inflation elevated for longer, which in turn could keep upward pressure on the US dollar, now at its strongest since the early 2000s. The IMF said this is pressuring
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