The International Monetary Fund has issued a warning about the state of the global economy, describing it as “limping.”
Economists of high standing convened in Marrakech, Morocco, on Tuesday to attend the yearly conference of the International Monetary Fund. Their main point was evident: The global economy is starting to decline as divisions between the East and West become more pronounced.
According to IMF Chief Economist Pierre-Olivier Gourinchas, the world economy is struggling to make progress, rather than moving quickly. He shared this statement with reporters on Tuesday.
The International Monetary Fund forecasts a decrease in global economic growth from 3% this year to 2.9% in 2024. This decline is attributed, in part, to the rise of geopolitical alliances that are hindering free trade on a global scale.
According to the IMF, the 2022 incursion of Moscow into Ukraine was a significant factor. They also mention that in the last 20 months, the West has implemented unprecedented sanctions against the Kremlin and has reduced its dependence on China.
Experts predict that the ongoing conflict between Israel and Hamas, supported by Iran, may widen the divide between Eastern and Western nations. This could also have a negative impact on trade in the Middle East and lead to an increase in global oil prices. The cost of oil has already risen significantly due to Russia’s invasion of Ukraine.
On Tuesday, World Bank President Ajay Banga expressed his concern over the current crisis, citing it as both a humanitarian disaster and an unwanted financial setback.
According to analysts, the lack of support for Hamas from major oil producers in the region, such as Saudi Arabia and the U.A.E., suggests that these countries are not likely to limit their oil exports in the near future.
However, the ongoing conflict in Gaza has caused a 4% increase in oil prices in recent days.
Gourinchas stated that it is premature to determine the impact of the violence in Israel on foreign economies.
The conference appeared to revolve around uncertainty. In the last three years, society has become accustomed to the unexpected. Gourinchas reminded us to not jump to hasty conclusions and to avoid panicking.
However, if the conflict in Israel continues, he stated that there could be a 10% increase in the price of oil, a 0.15% decrease in global economic growth, and a 0.4% rise in inflation.
The global economy has displayed impressive resilience, as noted by Gourinchas. This is partly due to efforts by the U.S. Federal Reserve and central banks around the world to raise interest rates in order to control inflation.
Economists suggest that the objective of this approach is to achieve a smooth transition: maintaining low unemployment rates and stabilizing the cost of living. Gourinchas stated that the tactic has been effective thus far.
The International Monetary Fund predicts that the United States economy will experience a growth of 2.1% in the current year and 1.5% in the following year. This is a notable improvement from their initial forecast of 1%.
Although oil prices have increased worldwide, the economy in the United States has been performing better in comparison to European nations. Experts attribute this to the fact that European consumers have been more cautious with their spending in the aftermath of the pandemic.
According to the IMF, the economy of the 20 European countries that use the Euro as their official currency, known as the eurozone, is projected to only grow by 0.7% in 2021 and 1.2% in 2024. This includes a decline in the economy of Germany, one of the largest in the Western world.
The economy of China, ranked second after the U.S., is predicted to grow by 5% this year and 4.2% next year. These numbers are lower than what the IMF had previously forecasted a few months ago.
According to the IMF, international trade is projected to increase by only 0.9% in the current year and 3.5% in 2024. This is significantly lower than the average growth rate of 4.9% in the previous two decades.
The Associated Press and Reuters contributed information for this report.