World

IMF cuts 2023 global growth, warns major economies to stall

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia’s invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” said International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP growth forecast to 2.7 percent, 0.2 point down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its weakest since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and continued lockdowns in China as it faces a property market crisis.

– Laser focus –

A key factor behind the slowdown is a shift in policy as central banks try to bring down soaring inflation, with higher interest rates starting to take the heat out of domestic demand.

Growing price pressures are the most immediate threat to prosperity, said Gourinchas in the report, adding that central banks are now “laser-focused on restoring price stability”.

Global inflation is expected to peak at 9.5 percent this year before dropping to 4.1 percent by 2024.

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, he warned, “by gravely undermining the hard-won credibility of central banks.”

Asked about the Federal Reserve’s rate hikes, Gourinchas told a press briefing on Tuesday that the IMF is not calling for an acceleration, but this “doesn’t mean that they should pause on the path… that we’ve seen” either. 

This is because banks were starting from a point where rates were historically low as countries emerged from the pandemic, he said.

Current challenges do not mean a large downturn is inevitable, but the fund also warned many low-income countries are either in, or close to debt distress.

While the G20 has agreed on a “common framework” for debt restructuring for the poorest countries, only three have qualified and “more progress is needed,” Gourinchas told reporters.

“Time may soon be running out,” he said.

– Slowdown in major economies –

The IMF has also cut forecasts for the world’s two biggest economies, the United States and China.

US economic growth for this year is now pegged at 1.6 percent, 0.7 point below the fund’s July forecast, due to an “unexpected real GDP contraction in the second quarter,” the IMF said.

“Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending,” the report added.

The Federal Reserve has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

China’s economy is expected to grow at 3.2 percent this year — its lowest rate in decades, apart from the initial coronavirus outbreak.

The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh heavily on growth.

A slowdown in the Euro area is also expected to deepen next year, the IMF projected, with the German and Italian economies tumbling into recession due to their exposure to Russian gas cuts.

The energy crisis provoked by Russia’s invasion of Ukraine “is not a transitory shock,” the IMF said, describing the global shift in energy trade as “broad and permanent.”

It warned that winter this year will be “challenging for Europe,” while “winter 2023 will likely be worse.”

Hope fading in search for Venezuela landslide survivors

Hopes were fading Tuesday of finding alive any of the 56 people missing after a devastating landslide swept through a Venezuelan town with 36 confirmed deaths to date.

Neighbors and rescuers — some 3,000 police, soldiers and other professionals — were engaged in the ever-more desperate search among the fast-hardening mud, tree trunks and rocks dumped Saturday on the town of Las Tejerias. 

Rescuers told AFP it would be “difficult” to find any survivors in the town some 50 kilometers (31 miles) from the capital Caracas.

“I don’t know whether to scream, I don’t know whether to run… whether to cry,” Nathalie Matos, 34, told AFP of the frustrating wait for news on the fate of her 65-year-old mother, who she had on the phone as the deluge came.  

“She told me: ‘Daughter, I am drowning, the water got in, get me out, get me out… save me!” Matos recounted.

“I tried to call her back, she picked up, but there was just noise.”

A rescue team is at her mother’s mud-filled house.

“The dog gave signs here, in this area that was the living room and the kitchen,” said a firefighter, though all their digging so far had yielded nothing.

“I know she is there,” insisted Mato.  

A few meters away, another team examined a piece of land where a house stood until Saturday, when Las Tejerias became the site of Venezuela’s worst natural disaster in decades.  

Neighbors were helping to reconstruct what would have been the floor plan to get an idea of where to dig.

A civil protection official, who did not have permission to speak in an official capacity, told AFP most victims of the storm died after they were struck by tree trunks, large rocks or other objects swept along by the raging waters, others of hypothermia.  

Unusually heavy rains caused a major river and several streams to overflow on Saturday, causing a torrent of mud that washed away cars, parts of homes, businesses and telephone wires, and felled massive trees.

According to Vice President Delcy Rodriguez, a month’s worth of rain fell in the area in just eight hours.

The government has declared three days of mourning.

– Town ‘will be reborn’ –

Experts say the storm was aggravated by the seasonal La Nina weather system gripping the region, as well as the effects of Hurricane Julia which also claimed at least 26 lives in Central America and caused extensive damage.

Crisis-hit Venezuela is no stranger to seasonal storms, but this was the worst so far this year following historic rain levels that caused dozens of deaths in recent months. 

In 1999, about 10,000 people died in a massive landslide in the northern state of Vargas. 

President Nicolas Maduro visited Las Tejerias on Monday, vowing to rebuild “each and every” home and business destroyed by the freak storm.

“We take with us the pain, the clamor, the despair, the tears of the people, but they must know that Las Tejerias will rise like the phoenix, Las Tejerias will be reborn,” he said.

According to Rodriguez, 317 homes were “completely destroyed” and 757 damaged by the mudslide. 

The authorities have erected refuge centers in Maracay, the capital of the affected Aragua province, and announced the distribution of 300 tons of food. 

Hope fading in search for Venezuela landslide survivors

Hopes were fading Tuesday of finding alive any of the 56 people missing after a devastating landslide swept through a Venezuelan town with 36 confirmed deaths to date.

Neighbors and rescuers — some 3,000 police, soldiers and other professionals — were engaged in the ever-more desperate search among the fast-hardening mud, tree trunks and rocks dumped Saturday on the town of Las Tejerias. 

Rescuers told AFP it would be “difficult” to find any survivors in the town some 50 kilometers (31 miles) from the capital Caracas.

“I don’t know whether to scream, I don’t know whether to run… whether to cry,” Nathalie Matos, 34, told AFP of the frustrating wait for news on the fate of her 65-year-old mother, who she had on the phone as the deluge came.  

“She told me: ‘Daughter, I am drowning, the water got in, get me out, get me out… save me!” Matos recounted.

“I tried to call her back, she picked up, but there was just noise.”

A rescue team is at her mother’s mud-filled house.

“The dog gave signs here, in this area that was the living room and the kitchen,” said a firefighter, though all their digging so far had yielded nothing.

“I know she is there,” insisted Mato.  

A few meters away, another team examined a piece of land where a house stood until Saturday, when Las Tejerias became the site of Venezuela’s worst natural disaster in decades.  

Neighbors were helping to reconstruct what would have been the floor plan to get an idea of where to dig.

A civil protection official, who did not have permission to speak in an official capacity, told AFP most victims of the storm died after they were struck by tree trunks, large rocks or other objects swept along by the raging waters, others of hypothermia.  

Unusually heavy rains caused a major river and several streams to overflow on Saturday, causing a torrent of mud that washed away cars, parts of homes, businesses and telephone wires, and felled massive trees.

According to Vice President Delcy Rodriguez, a month’s worth of rain fell in the area in just eight hours.

The government has declared three days of mourning.

– Town ‘will be reborn’ –

Experts say the storm was aggravated by the seasonal La Nina weather system gripping the region, as well as the effects of Hurricane Julia which also claimed at least 26 lives in Central America and caused extensive damage.

Crisis-hit Venezuela is no stranger to seasonal storms, but this was the worst so far this year following historic rain levels that caused dozens of deaths in recent months. 

In 1999, about 10,000 people died in a massive landslide in the northern state of Vargas. 

President Nicolas Maduro visited Las Tejerias on Monday, vowing to rebuild “each and every” home and business destroyed by the freak storm.

“We take with us the pain, the clamor, the despair, the tears of the people, but they must know that Las Tejerias will rise like the phoenix, Las Tejerias will be reborn,” he said.

According to Rodriguez, 317 homes were “completely destroyed” and 757 damaged by the mudslide. 

The authorities have erected refuge centers in Maracay, the capital of the affected Aragua province, and announced the distribution of 300 tons of food. 

Alarm grows over Iran protest crackdown in Kurdish city

Rights groups voiced alarm Tuesday over the extent of an Iranian crackdown on a Kurdish-populated city that has become a flashpoint for nationwide protests that have now lasted over three weeks.

Iran’s clerical authorities have been shaken since mid-September of protests that erupted after the death of Mahsa Amini, a 22-year old Iranian of Kurdish origin, who had been arrested by the notorious morality police.

Despite the use of brutal force by the authorities that activists say has left dozens dead, and led to hundreds of arrests, there is so far no sign of the protest movement coming to an end.

Protests have been especially intense in the city of Sanandaj in the western province of Kurdistan, Amini’s home region, where rights groups fear heavy casualties and accuse authorities of resorting to shelling of neighbourhoods.

The Norway-based Hengaw rights group said an Iranian warplane had arrived at the city’s airport overnight and buses carrying special forces were on their way to the city from elsewhere in Iran.

It said residents were having problems sending video evidence of events due to internet restrictions, but said a seven-year-old had been killed on Sunday night. AFP could not immediately verify the claims.

Hengaw said at least seven people had been confirmed killed by the security forces in Sanandaj and other Kurdish-populated cities since Saturday.

Amnesty International said it was “alarmed by the crackdown on protests in Sanandaj amid reports of security forces using firearms and firing teargas indiscriminately, including into people’s homes”.

On a visit to Sanandaj, Interior Minister Ahmad Vahidi reaffirmed Tehran’s position — strongly contested by rights groups — that the unrest had been “supported, planned and carried out by separatist terrorist groups”.

– ‘All together!’ –

The New-York based Center for Human Rights in Iran said there was a risk of a similar situation in Sistan-Baluchistan province in the southeast where activists say more than 90 people have been killed since September 30.

“The ruthless killings of civilians by security forces in Kurdistan province, on the heels of the massacre in Sistan-Baluchistan province, are likely preludes to severe state violence to come,” said its director Hadi Ghaemi.

Analysts have said the protests are proving particularly challenging for the authorities under supreme leader Ayatollah Ali Khamenei, 83, due to their duration and multi-faceted nature, ranging from street demonstrations to individual acts of defiance.

In a new development on Monday, protests spread to Iran’s oil refineries with videos showing striking workers burning tyres and blocking roads outside the Asalouyeh petrochemical plant in the southwest.

They could also be heard shouting slogans including “Death to the dictator” and “Don’t be scared, we are all together!”.

Similar actions were in progress on Tuesday with Oslo-based group Iran Human Rights (IHR) saying strikes were in progress in Abadan in western Iran and Bushehr to the south.

State news agency IRNA denied there was any strike action in the area. The governor of Asalouyeh, Ali Hashemi, told the Fars news agency that “opportunists” who had caused fires in the area had been arrested.

University campuses and even school classrooms have also seen repeated protests, with students at the Amir Kabir University of Technology in Tehran on Monday shown chanting anti-regime slogans.

In a video shared by the 1500tasvir social media channel that monitors protests and police violations, students at the Tehran Art University were shown spelling out the Persian word for blood in a human chain.

– ‘Vain effort to silence’ –

The crackdown on the protests sparked by Amini’s death on September 16 has claimed at least 95 lives, according to IHR.

Activists say that among those who died in the protests are two teenage girls, Nika Shakarami and Sarina Esmailzadeh.

Their families say they were killed by security forces after being detained. Authorities insist they died in falls.

UNICEF executive director Catherine Russel said: “We are extremely concerned by continuing reports of children and adolescents being killed, injured and detained.”

Among the dozens of prominent figures arrested in the crackdown is the daughter of late former president Akbar Hashemi Rafsanjani, Faezeh Hashemi. The judiciary said Tuesday she has been charged with “disruption of public order and propaganda against the Islamic republic.”

The crackdown has prompted international condemnation with US National Security Advisor Jake Sullivan telling Iran the “world is watching” and “will hold responsible those using violence in a vain effort to silence” protesters.

Britain said Monday it had imposed sanctions on Iran’s morality police, the unit which arrested Amini and enforces strict dress rules for women including the compulsory headscarf.

Iran said it has summoned the British ambassador to protest against the “baseless” sanctions.

French Foreign Minister Catherine Colonna said on Tuesday that five French citizens are currently being held in Iran.

Paris had previously said four French were held. According to the Iranian intelligence ministry, at least one of nine foreigners Iran is holding over links to the protests is French.

Zelensky pleads for Ukraine 'air shield' after Russian onslaught

Ukrainian leader Volodymyr Zelensky called on Tuesday for wealthy Western nations to help Kyiv create an “air shield” after a rash of deadly Russian aerial attacks.

Zelensky, who told the G7 club of rich nations “millions of people would be grateful” for help fending off attacks from the sky, warned Russia “still has room for further escalation” after Monday’s bloody missile salvoes across Ukraine.

Following the attacks, Washington pledged to up shipments of air defences to Ukraine, while Germany promised delivery “in the coming days” of the first Iris-T missile shield reportedly capable of protecting a city.

In a week of marked escalation in the war, G7 leaders said that Belarus’s plan to deploy joint forces with Russia constituted a new instance of “complicity” with Moscow, warning Minsk to “stop enabling” Russia’s invasion.

Following talks with Zelensky, G7 leaders said they would hold Russian President Vladimir Putin to account for the attacks but did not say how. 

Before the G7 meeting, the Kremlin had already said it expected “confrontation” with the West to continue.

Russia followed up the missile launches at the start of the week with further aerial attacks on Tuesday.

Officials in Ukraine’s western region of Lviv said at least three Russian missiles fired Tuesday targeted energy infrastructure forcing Kyiv to ask people to cut their electricity usage and switch off appliances at night.

Russia’s defence ministry confirmed Tuesday’s renewed attacks, saying it had carried out massive strikes using long-range and high-precision weapons and that “all assigned targets were hit”.

In Lviv, the largest city in the region of the same name, the mayor said that one-third of homes were without power.

Monday’s attacks saw Russian missiles hit the Ukrainian capital Kyiv for the first time in months. 

The Ukrainian defence ministry said Monday that Russia had fired 83 missiles at Ukraine, of which its air defences shot down 52, among which were 43 cruise missiles.

Ukraine said 19 people died and more than 100 people were wounded in Monday’s more widespread strikes, while the UN said Russia’s bombardment may have violated the laws of war.

Residents across Ukraine expressed shock and rage after Monday’s onslaught.

Ksenia Ryazantseva’s suburb of Kyiv, a city of three million people that has largely been spared the violence seen on Ukraine’s southern and eastern fronts, was one of those targeted.

“We were sleeping and we heard the first explosion” by the crossroads, the language teacher, 39, told AFP.

“We woke up and went to check, then the second explosion occurred.”

Monday’s mass barrage came in apparent retaliation for an explosion at the weekend that damaged a key bridge linking Russia to Crimea, a peninsula Moscow annexed from Ukraine in 2014.

Putin blamed Ukraine for the bridge blast and warned of “severe” responses to any further attacks.

– ‘Just peace’ –

Ukrainian Foreign Minister Dmytro Kuleba said the strikes showed Moscow was “desperate” after a spate of embarrassing military setbacks, a sentiment echoed by NATO chief Jens Stoltenberg who said they were “a sign of weakness”.

Turkey on Tuesday called for a viable ceasefire between Russia and Ukraine “as soon as possible”, with Turkish President Recep Tayyip Erdogan expected to meet Putin in Kazakhstan this week.

Speaking in a televised interview, Turkish Foreign Minister Mevlut Cavusoglu also called for a “just peace” based on Ukraine’s territorial integrity. 

– ‘A profound change’ –

Ukraine’s allies have been united in their public pledges of unwavering support for Kyiv.

German government spokesman Steffen Hebestreit told reporters on Monday that Chancellor Olaf Scholz had spoken with Zelensky and assured him “of the solidarity of Germany and the other G7 states”.

French President Emmanuel Macron convened his defence and foreign affairs ministers over the strikes, which he said signalled “a profound change in the nature of this war”.

US President Joe Biden condemned Monday’s attacks in stark terms, saying they demonstrated “the utter brutality” of Putin’s “illegal war”.

Putin meanwhile told the head of the UN’s nuclear energy watchdog Rafael Grossi that he was “open to dialogue” on the future of the Russian-controlled nuclear plant in the Ukrainian region of Zaporizhzhia.

Fighting around the facility for months has raised fears of a nuclear accident.

Ukraine’s state nuclear energy agency on Tuesday accused Russian forces of detaining and mistreating another senior official at the Zaporizhzhia nuclear plant.

Equities, oil prices slide on recession fears

Stock markets mostly slid and oil prices slumped Tuesday as investors grow increasingly fearful that more big interest rate hikes will tip economies into deep recessions.

The mood darkened also on the worsening Ukraine war, weaker demand expectations in China, and the IMF trimmed its growth forecast for next year.

With the focus on inflation, analysts said US consumer price index data released later this week will be crucial to the direction of risk assets. 

Another big reading could spark a fresh equity selloff and a surge in the dollar.

“There is growing pessimism in the markets now and with some big data points to come from the US this week, not to mention the start of earnings season,” noted Craig Erlam, analyst at OANDA trading group.

“Investors should probably brace for more volatility.”

Traders had hoped that bumper rate increases by the US Federal Reserve this year would begin to drag on the economy and slow runaway prices, allowing policymakers to reduce the pace of monetary tightening.

But a forecast-beating US jobs report on Friday highlighted the tough work the country’s central bank has slowing inflation from four-decade highs, and many observers warn recession is virtually inevitable.

– ‘Real danger’ –

World Bank chief David Malpass said Monday there was a “real danger” of a global contraction next year, adding that the surge in the dollar was weakening the developing nations’ currencies and pushing their debt to “burdensome” levels.

However, in its latest forecasts released on Tuesday, the IMF trimmed its 2023 global growth forecast to 2.7 percent. It left its world growth forecast for this year unchanged at 3.2 percent.

But the IMF’s economic counsellor Pierre-Olivier Gourinchas also warned that more than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

– Dollar dips –

Chip manufacturers globally took a pounding from new US export controls aimed at restricting China’s ability to buy and make high-end chips with military applications.

Taipei led the losses in Asia — diving more than four percent — as chip giant TSMC plunged 8.3 percent, while a hefty selloff in Samsung Electronics dragged Seoul down 1.6 percent. Tokyo was also sharply lower owing to a hit to tech firms.

All three markets had been closed Monday and were reacting to Friday’s US announcement for the first time.

Europe’s main equity markets closed lower, but Wall Street pushed into positive territory in late morning trading. 

On currency markets, the dollar dipped after recent strong gains as the United States heads the monetary tightening drive.

The pound rose, but nevertheless remained under pressure despite the Bank of England unveiling further measures to calm markets rocked by the government’s fiscal plans, saying it would increase purchases of government bonds.

“Investors fear that the UK government is borrowing too much and that it won’t be able to balance its books,” said City Index and FOREX.com analyst Fawad Razaqzada.

Oil prices fell, with concerns about Chinese demand front and centre.

“Covid cases are picking up in the country, and the Chinese Communist Party’s newspaper, the People’s Daily, ran a commentary saying the Covid Zero policy is ‘sustainable’, indicating that the country is likely to keep following it if not double down,” said Stephen Innes at SPI Asset Management. 

– Key figures around 1530 GMT –

New York – Dow: UP 0.5 percent at 29,358.39 points

EURO STOXX 50: DOWN 0.5 percent at 3,340.35 

London – FTSE 100: DOWN 1.1 percent at 6,885.23 (close)

Frankfurt – DAX: DOWN 0.4 percent at 12,220.25 (close)

Paris – CAC 40: DOWN 0.1 percent at 5,833.20 (close)

Tokyo – Nikkei 225: DOWN 2.6 percent at 26,401.25 (close)

Hong Kong – Hang Seng Index: DOWN 2.2 percent at 16,832.36 (close)

Shanghai – Composite: UP 0.2 percent at 2,979.79 (close)

Euro/dollar: UP at $0.9719 from $0.9708 on Monday

Pound/dollar: UP at $1.1108 from $1.1059

Euro/pound: DOWN at 87.51 pence from 87.76 pence

Dollar/yen: DOWN at 145.70 yen from 145.72 yen

West Texas Intermediate: DOWN 2.2 percent at $89.15 per barrel

Brent North Sea crude: DOWN 2.2 percent at $94.10 per barrel

burs-rl/cdw

IMF cuts 2023 global growth, warns major economies to stall

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia’s invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” said International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 percent, 0.2 points down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its “weakest” since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and continued lockdowns in China as it faces a property market crisis.

– Laser focus –

A key factor behind the slowdown is a shift in policy as central banks try to bring down soaring inflation, with higher interest rates starting to take the heat out of domestic demand.

Growing price pressures are the most immediate threat to prosperity, said Gourinchas in the report, adding that central banks are now “laser-focused on restoring price stability”.

Global inflation is expected to peak at 9.5 percent this year before dropping to 4.1 percent by 2024.

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, he warned, “by gravely undermining the hard-won credibility of central banks.”

Asked about the Federal Reserve’s rate hikes, Gourinchas told a press briefing on Tuesday that the IMF is not calling for an acceleration, but this “doesn’t mean that they should pause on the path… that we’ve seen” either. 

This is because banks were starting from a point where rates were historically low as countries emerged from the pandemic, he said.

Current challenges do not mean a large downturn is inevitable, but the fund also warned many low-income countries are either in, or close to debt distress.

Progress toward debt restructurings for the hardest-hit is needed to avoid a wave of sovereign debt crisis.

“Time may soon be running out,” said Gourinchas.

While the G20 has agreed on a “common framework” for debt restructuring for the poorest countries, only three have qualified and “more progress is needed,” he told reporters.

– US slowdown –

The IMF has also cut forecasts for the world’s two biggest economies, the United States and China.

US economic growth for this year is now pegged at 1.6 percent, 0.7 points below the fund’s July forecast, due to an “unexpected real GDP contraction in the second quarter,” the IMF said.

“Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending,” the report added.

The Federal Reserve has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

A slowdown in the Euro area is expected to deepen next year, with the German and Italian economies slightly contracting, the IMF projects.

China’s economy is expected to grow at only 3.2 percent this year — its lowest rate in decades, apart from the initial coronavirus outbreak.

The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh heavily on growth.

IMF cuts 2023 global growth, warns major economies to stall

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia’s invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” said International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 percent, 0.2 points down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its “weakest” since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and continued lockdowns in China as it faces a property market crisis.

– Laser focus –

A key factor behind the slowdown is a shift in policy as central banks try to bring down soaring inflation, with higher interest rates starting to take the heat out of domestic demand.

Growing price pressures are the most immediate threat to prosperity, said Gourinchas in the report, adding that central banks are now “laser-focused on restoring price stability”.

Global inflation is expected to peak at 9.5 percent this year before dropping to 4.1 percent by 2024.

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, he warned, “by gravely undermining the hard-won credibility of central banks.”

Asked about the Federal Reserve’s rate hikes, Gourinchas told a press briefing on Tuesday that the IMF is not calling for an acceleration, but this “doesn’t mean that they should pause on the path… that we’ve seen” either. 

This is because banks were starting from a point where rates were historically low as countries emerged from the pandemic, he said.

Current challenges do not mean a large downturn is inevitable, but the fund also warned many low-income countries are either in, or close to debt distress.

Progress toward debt restructurings for the hardest-hit is needed to avoid a wave of sovereign debt crisis.

“Time may soon be running out,” said Gourinchas.

While the G20 has agreed on a “common framework” for debt restructuring for the poorest countries, only three have qualified and “more progress is needed,” he told reporters.

– US slowdown –

The IMF has also cut forecasts for the world’s two biggest economies, the United States and China.

US economic growth for this year is now pegged at 1.6 percent, 0.7 points below the fund’s July forecast, due to an “unexpected real GDP contraction in the second quarter,” the IMF said.

“Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending,” the report added.

The Federal Reserve has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

A slowdown in the Euro area is expected to deepen next year, with the German and Italian economies slightly contracting, the IMF projects.

China’s economy is expected to grow at only 3.2 percent this year — its lowest rate in decades, apart from the initial coronavirus outbreak.

The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh heavily on growth.

Ukraine's Zelensky urges UNESCO cultural protection for Odessa

Ukraine’s President Volodymyr Zelensky on Tuesday officially requested that UNESCO add the historic port city of Odessa to its World Heritage List in a bid to protect it from Russian air strikes.

“We must provide a clear signal that the world will not turn a blind eye to the destruction of our common history, our common culture, our common heritage,” he told the 58 member states of the UN’s cultural watchdog in a pre-recorded video.

“One of the steps for this should be the preservation of the historical centre of Odessa — a beautiful city, an important port of the Black Sea and a source of culture for millions of people in different countries.”

Known as the pearl of the Black Sea, Odessa blossomed after empress Catherine the Great decreed in the late 18th century that it would be Russia’s modern maritime gateway.

Czar Alexander named as governor France’s Duc de Richelieu, who oversaw its construction and whose statue still stands atop its iconic Potemkin stairs.

But since Russia invaded Ukraine in February, Ukrainians have rushed to try to protect its monuments and buildings with sandbags and barricades.

“Odessa, like all other cities of Ukraine, is a target for Russian strikes,” the Ukrainian president said.

“Please support Odessa! Show at the level of UNESCO precisely that Russian terror must end.”

The UN cultural agency said Ukraine’s application would be reviewed during the next World Heritage Committee meeting, without giving a date.

It said a place on the World Heritage List for Odessa “would recognise the exceptional universal value of this site and the duty of humanity as a whole to protect it”.

“In legal terms, it would establish an extended protection zone” under the 1972 World Heritage Convention, it said.

Both Ukraine and Russia have signed the convention, which prohibits states from taking “any deliberate measures which might damage directly or indirectly the cultural and natural heritage” of others.

Six cultural sites in Ukraine are already inscribed on the UNESCO World Heritage List, including the Saint-Sophia Cathedral in the capital Kyiv and the historic centre of the western city of Lviv. None has so far made it on to the UNESCO List of World Heritage in Danger.

According to UNESCO, no Ukrainian cultural site on its World Heritage List has so far been hit in the war.

But Zelensky said Russian strikes had damaged 540 other “objects of cultural heritage, cultural institutions and religious buildings” since the invasion on February 24.

BoE widens action on 'UK financial stability' fears

The Bank of England on Tuesday unveiled yet more measures aimed at calming markets rocked by a UK budget as it warned over risks to the nation’s financial stability.

The week had already seen action taken by the BoE and UK government aimed at bringing calm to bond markets in particular as state borrowing soars.

The moves are a response to soaring UK bond yields and after the pound tumbled to a record low against the dollar since the government of new Prime Minister Liz Truss unveiled debt-fuelled tax cuts in a budget last month.

A day after it launched a temporary facility aimed at easing liquidity pressures, the central bank Tuesday said it was widening the scope of daily purchases of UK government bonds, or gilts, until Friday.

In a statement, the BoE said the latest action would “act as a further backstop to restore orderly market conditions”. 

It noted that “the beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts”, which the central bank will now purchase under its wider operation of bond purchases.

“Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” it added.

Tuesday’s intervention by the BoE resulted in a small drop in yields but they edged back into positive territory in the afternoon, while the pound rose versus the dollar.

“The key sticking point is that the support measures are only scheduled to last until Friday,” noted AJ Bell investment director Russ Mould.

“Extending it could go one of two ways — the market either applauds the move and breathes a sigh of relief or it gets even more worried, thinking that the extra time suggests the crisis is more severe than originally thought.”

– Unemployment down –

In some positive news, official data Tuesday revealed British unemployment fell to a near 50-year low at 3.5 percent.

Wages, however, continue to be eroded by decades-high inflation that threatens to send Britain into recession.

The British government on Monday brought forward key growth and inflation forecasts to Halloween, hoping not to spook markets further.

Finance minister Kwasi Kwarteng will unveil debt-reduction plans and UK economic predictions on October 31 rather than in late November.

It comes after Kwarteng was already forced to axe a tax cut for the richest earners, in the face of outrage as millions of Britons face a cost-of-living crisis with UK inflation around 10 percent.

– ‘Painful cuts’ –

Britain meanwhile faces “painful” cuts in public spending to fix state finances should it decide against more U-turns over tax cuts, a leading think tank warned.

“With a weaker economy, getting government finances on a sustainable path without cancelling tax cuts could force… big and painful spending cuts,” the Institute for Fiscal Studies said in a study.

The budget was widely criticised, including by the International Monetary Fund, over fears that government debt would balloon to pay for the tax cuts, including on salaries of all UK workers.

Added to the gloom on Tuesday, the IMF forecast that UK economic growth would slow sharply from 3.6 percent this year to just 0.3 percent in 2023 — and warned the budget would “complicate” efforts to fight inflation.

Fitch last week lowered the outlook on its credit rating for British government debt to negative from stable.

The BoE has piled on further pressure by ramping up its main interest rate to a 14-year high of 2.25 percent in a bid to cool inflation — and is expected to hike even further next month.

This in turn has seen retail banks ramp up interest rates on mortgages, with analysts predicting heavy price falls for property.

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