With soaring prices and growing financial uncertainty across the world, a by (IMF) provides a grim outlook 鈥� even for the world鈥檚 most advanced economies.
While the world鈥檚 largest economies鈥攖he U.S., China, and the Euro area -- faced a downgrade, Canada鈥檚 economy has also been projected to drive growth down from 3.4 per cent this year to 1.8 per cent next year but remains the fastest GDP growth in amongst all the G7 nations in both the years.
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IMF highlighted tighter financial conditions, China鈥檚 economic slowdown, COVID-19 outbreaks, and the negative impact of the war in Ukraine as major shocks that have weighed down the world economy. The Washington-based institute said higher-than-expected inflation across the world鈥攅specially across advanced economies鈥� has further weakened its growth projections, increasing the probability of recession for G7 economies.
In its previous reports, IMF had highlighted the gloomy developments of 2022 but only in its most recent report did it say that the downside risks have begun to materialize.
With economic uncertainty and growing concerns around inflation, IMF experts now warn that the possibility of recession has also increased.
The probability of a recession hitting G7 economies is estimated to be nearly 15 per cent鈥攆our times higher its usual level.
鈥淪hould additional shocks hit the global economy, economic outcomes would be even worse,鈥� the report said.
The IMF lowered the global growth from last year鈥檚 6.1 per cent to 3.2 per cent this year, which falls further to 2.9 per cent in 2023.
HIGHER-THAN-EXPECTED INFLATION
Global inflation remains a major concern for the IMF鈥� partly due to the rising food and energy prices.
IMF鈥檚 recent report said that inflation can reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies鈥攗pward revisions of 0.9 and 0.8 percentage points, respectively, from July.
鈥淚nflation at current levels represents a clear risk for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers,鈥� Pierre-Olivier Gourinchas, the IMF's director of research, on Tuesday.
Canada鈥檚 inflation lags behind countries such as the U.S., and the U.K.鈥� which are also experiencing astronomical rates of increase over the past year.
While every G7 country is facing a rising inflation, the 鈥� its highest since the early 1980s. Meanwhile, the U.S. reached its highest level in more than 40 years, at 9.1 per cent. Canada's inflation also reached a peak at 8.1 per cent, the highest since 1991.
Among its G7 peers, Canada has the third highest inflation rate, followed by Italy, Germany, France, and Japan.
IMF said that even with the global food prices stabilizing, food inflation remains much higher than in 2021. With prices of cereal going up, the primary driving force has been the ongoing war in Ukraine, with a compounding impact from the export restrictions in several countries. Low-income countries, especially sub-Saharan Africa, are facing a deeper impact of food inflation.
Recent data from the t (OECD) shows that Canada had the fourth-highest food inflation among its G7 peers in the month of June.
DISINFLATION 鈥� MORE COSTLY THAN ANTICIPATED
With increasing prices squeezing living standards worldwide, taming inflation should be the first priority for policymakers, according to IMF experts. They said any delay in addressing inflation could only exacerbate the situation.
The central banks across all G7 nations have been rushing to tighten their monetary policies, as many drift away from their inflation targets.
Just this month, the Bank of Canada raised its key interest rate target by 100 basis points 鈥攊ts biggest hike since 1998.
In a , Bank of Canada Governor, said 鈥渞estoring price stability鈥攍ow, stable and predictable inflation鈥攊s paramount.鈥�
He said the drivers of inflation are the same in Canada as in most countries.
While the central banks have responded to high inflation by increasing interest rates, the exact amount of policy tightening required to lower inflation without inducing a recession is difficult to ascertain, the IMF said.
