The UK economy is expected to shrink this year and will be at the back of the leading G7 countries at a time when a fresh outbreak of financial upheaval threatens the slowing global recovery, the International Monetary Fund has warned.<\/p>\n\n\n\n
Stressing the growing risks of a hard landing for developed countries, the Washington-based body singled out the UK and the euro area as being particularly affected by rising energy costs and higher inflation.<\/p>\n\n\n\n
The IMF slightly revised up its estimate of UK growth this year from the -0.6% pencilled in three months ago but still expected the economy to contract by 0.3%.<\/p>\n\n\n\n
After being the fastest-growing economy in 2022, the UK \u2013 along with Germany \u2013 is one of only two G7 countries predicted to contract in 2023, according to the IMF\u2019s world economic outlook (WEO).<\/p>\n\n\n\n
Its economic counsellor, Pierre-Olivier Gourinchas, said there would be no early respite from the UK\u2019s cost of living crisis, which has taken the annual inflation rate to 10.4%, and only a modest bounceback to 1% growth next year, when the general election is scheduled to be held.<\/p>\n\n\n\n
\u201cWe do continue to predict a recession in 2023 on the back of the fairly sharp impact of rising energy prices, monetary policy tightening and some tightening of financial conditions,\u201d Gourinchas said. \u201cOur overall assessment is that this is going to be a challenging year for the UK but growth is going to increase in 2024.\u201d<\/p>\n\n\n\n
The IMF said it expected global growth to slow from 3.4% in 2022 to 2.8% this year \u2013 with the risks of an even sharper easing if last month\u2019s problems affecting regional US banks such as the collapsed Silicon Valley Bank and Switzerland\u2019s recently rescued Credit Suisse prove to be symptomatic of a more widespread malaise.<\/p>\n\n\n\n
The WEO said the slowdown in activity had been concentrated among rich countries, with the growth rate for advanced economies forecast to slow from 2.7% in 2022 to 1.3% in 2023. No G7 country is expected to grow by more than the 1.6% pencilled in for the US.<\/p>\n\n\n\n
Gourinchas said that on the surface the global economy seemed poised for a gradual recovery after the setbacks caused by the global pandemic and Russia\u2019s invasion of Ukraine. \u201cBelow the surface, however, turbulence is building, and the situation is quite fragile, as the recent bout of banking instability reminded us.\u201d<\/p>\n\n\n\n
He said the IMF backed central banks in their determination to bring inflation back down from the highest level in four decades, but admitted that higher interest rates could expose underlying problems in the financial system.<\/p>\n\n\n\n
\u201cWe are therefore entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner,\u201d he added.<\/p>\n\n\n\n
The WEO notes that the leading forces that affected the global economy in 2022 \u2013 the ratcheting-up of interest rates, the limited space for governments to cut taxes or raise public spending and historically high debt levels, and evidence of global fragmentation into rival blocs \u2013 had been overlaid and were interacting with financial stability concerns.<\/p>\n\n\n\n
\u201cA hard landing \u2013 particularly for advanced economies \u2013 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,\u201d the report said.<\/p>\n\n\n\n
Although the IMF thinks global growth will pick up to 3% in 2024, the fund said its forecasts for coming years were well below what it was expecting in January 2022, a month before Russia invaded Ukraine.<\/p>\n\n\n\n
\u201cCompared with the January 2022 WEO update forecast, global growth in 2023 is 1.0 percentage point lower, and this growth gap is expected to close only gradually in the coming two years,\u201d the IMF said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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