The International Monetary Fund warned of a worsening outlook for the global economy, highlighting that efforts to manage the highest inflation in decades may add to the damage from the war in Ukraine and China’s slowdown.
The IMF cut its forecast for global growth next year to 2.7%, from 2.9% seen in July and 3.8% in January, adding that it sees a 25% probability that growth will slow to less than 2%. The risk of policy miscalculation has risen sharply as growth remains fragile and markets show signs of stress, the IMF said Tuesday in its World Economic Outlook.
About one-third of the global economy risks contracting next year, it said, with the US, European Union, and China all continuing to stall. The impact of the Federal Reserve’s monetary policy tightening will be felt globally, with the dollar’s strength versus currencies in emerging and developing markets adding to inflation and debt pressures. Excluding the unprecedented slowdown of 2020 because of the coronavirus pandemic, next year’s performance would be the weakest since 2009, in the wake of the global financial crisis.
Meanwhile, JPMorgan Chase CEO Jamie Dimon on Monday warned that a “very, very serious” mix of headwinds was likely to tip both the U.S. and global economy into recession by the middle of next year. Dimon, chief executive of the largest bank in the U.S., said the U.S. economy was “actually still doing well” at present and consumers were likely to be in better shape compared with the 2008 global financial crisis.
“But you can’t talk about the economy without talking about stuff in the future — and this is serious stuff,” Dimon told CNBC’s Julianna Tatelbaum on Monday at the JPM Techstars conference in London. Among the indicators ringing alarm bells, Dimon cited the impact of runaway inflation, interest rates going up more than expected, the unknown effects of quantitative tightening and Russia’s war in Ukraine.
“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said.
His comments come at a time of growing concern about the prospect of an economic recession as the Federal Reserve and other major central banks raise interest rates to combat soaring inflation. Speaking to CNBC last month, Chicago Federal Reserve President Charles Evans said he’s feeling apprehensive about the U.S. central bank going too far, too fast in its bid to tackle high inflation rates.
The Federal Reserve’s fight to squash inflation will cause the US economy to start losing tens of thousands of jobs a month beginning early next year, Bank of America warns. Although the jobs market remained surprisingly strong in September, the Fed is working hard to change that by aggressively raising interest rates to ease demand for everything from cars and homes to appliances.
The pace of job growth is expected to be roughly cut in half during the fourth quarter of this year, Bank of America told clients in a report Friday. As pressure from the Fed’s war on inflation builds, nonfarm payrolls will begin shrinking early next year, translating to a loss of about 175,000 jobs a month during the first quarter, the bank said. Charts published by Bank of America suggest job losses will continue through much of 2023.
“The premise is a harder landing rather than a softer one,” Michael Gapen, head of US economics at Bank of America, told CNN in a phone interview Monday. In a perfect world, the Fed would slow the jobs market enough to get inflation back to healthy levels, but not so much that it causes significant and persistent job losses. Bank of America doesn’t think the Fed will be able to pull that off. “We are looking for a recession to begin in the first half of next year,” Gapen said.
Last Friday’s jobs report showed that although the jobs market is slowing down, the United States added a stronger-than-expected 263,000 jobs in September. The unemployment rate dropped to 3.5%, tied for the lowest level since 1969. But Gapen expects the unemployment rate will climb to around 5% or 5.5% over the next year.
By comparison, the Fed expects the unemployment rate to hit 4.4% next year. The US central bank is raising interest rates at the fastest pace in at least four decades in a bid to cool inflation. Fed officials have made clear they are in no rush to shift out of inflation-fighting mode to save the economy from a slowdown or even a recession.
