WASHINGTON - The International Monetary Fund (IMF) said Tuesday that the world economy was headed for "stormy waters" as it downgraded its global growth projections for next year and warned of a harsh worldwide recession if policymakers mishandled the fight against inflation.
The grim assessment was detailed in the fund's closely watched World Economic Outlook report, which was published as the world's top economic officials travelled to Washington for the annual meetings of the World Bank and the IMF.
The gathering arrives at a fraught time, as persistent supply chain disruptions and Russia's war in Ukraine have led to a surge in energy and food prices over the past year, forcing central bankers to raise interest rates sharply to cool off their economies.
Raising borrowing costs will probably tame inflation by slowing business investment and consumer spending, but higher rates could also yield a new set of problems: a cascade of recessions in rich nations and debt crises in poor ones.
There are growing fears among policymakers that a so-called soft landing will elude the global economy.
"In short, the worst is yet to come, and for many people 2023 will feel like a recession," the IMF report said.
The organisation maintained its most recent forecast that the global economy will grow 3.2 per cent this year but now projects that will slow to 2.7 per cent in 2023, slightly lower than the fund's previous estimate.
Both figures are big comedowns from the start of the year, when the fund projected global growth of 4.4 per cent in 2022 and 3.8 per cent in 2023, highlighting how the outlook has darkened in recent months.
Inflation is expected to peak later this year and decline from 8.8 per cent in 2022 to 6.5 per cent in 2023.
"The risks are accumulating," IMF's chief economist Pierre-Olivier Gourinchas, said during an interview in which he described the global economy as weakening.
"We're expecting about a third of the global economy to be in a technical recession."
The IMF defines a "technical recession" as an economy that contracts for two consecutive quarters.
Corporate America and Wall Street are already bracing for a downturn.
Mr Jamie Dimon, the CEO of JPMorgan Chase, told CNBC on Monday that the United States was likely to be "in some kind of recession six to nine months from now".
Despite the dire tone of the IMF's forecasts, some private forecasters are predicting worse. The median economist in a Bloomberg survey expects 2.9 per cent global growth this year and 2.5 per cent next, as the euro area posts 0.2 per cent growth in 2023 and Eastern Europe sees output fall.
The IMF report detailed how the economies of the United States, China and the 19 nations that use the euro are in various states of slowing, with effects rippling around the world.
In the US, inflation and rising interest rates are sapping consumer spending power, and housing activity is slowing as mortgage rates rise.
A recent three-month dip in gasoline prices gave consumers some relief from inflation, but prices have started to rise again. There are concerns that trend could continue after the oil production cut announced last week by the international cartel known as OPEC+.
IMF forecast that the US economy would grow 1.6 per cent this year, a downgrade from its previous projection, and 1 per cent in 2023.
In China, lockdowns to prevent the spread of Covid-19 continue to drag on its economy, which is projected to grow 3.2 per cent this year after expanding 8.1 per cent in 2021.
Beyond its pandemic restrictions, China is facing a crisis in its property sector as cash-constrained homeowners refuse to repay loans on unfinished properties. The IMF warned that China's housing crunch would spill into the country's domestic banking sector.
Europe has been heavily reliant on Russia for energy and is facing sharp increases in oil and gas prices as additional sanctions go into effect later this year, just as the weather turns colder.
Tourism has buttressed many of the economies of Europe in 2022, but uncertainty about energy prices has slowed manufacturing activity.
Efforts to respond to inflation have led to policy proposals that have caused their own upheaval.
Britain's financial markets have faced turmoil after investors rebuffed the tax and spending policies of Prime Minister Liz Truss and her new government. The Bank of England stepped up its intervention in Britain's bond market Tuesday, the second expansion of its emergency measures in two days, as it warned of a "material risk" to the nation's financial stability.
Although Russia is responsible for much of the jump in food and energy prices, its economy is holding up better than previously projected even in the face of robust international sanctions. Russia's economy is expected to contract 3.4 per cent this year and 2.3 per cent in 2023, much less than many economists believed earlier in the year.
IMF officials attributed that to the resilience of its energy exports, which have allowed Russia to stimulate its economy and prop up its labour market. Still, Russia is facing a deep recession, and its economic output is far lower than before the war.
The rapid appreciation of the US dollar, which is the strongest it has been since the early 2000s, also represents a threat to emerging markets.
The IMF urged policymakers in those countries to "batten down the hatches" and conserve their reserves of foreign currencies for when financial conditions worsen. NYTIMES