Ominous forecasts: ECB and IMF warn of high inflation and economic contraction until 2026

“Black” clouds cover her global economy with its managing director IMF, Kristalina Georgieva, to warn that “the dangers recession are increasing” at the same time as the ECB estimates that the inflation will remain off target for a longer period of time.

Speaking at Georgetown University, IMF Managing Director Kristalina Georgieva indicated that the International Monetary Fund will once again revise its forecast for global economic growth in 2023 – its fourth downward revision this year – estimating that world output will shrink by $4 trillion until 2026.

“As you will see in our updated World Economic Outlook (Outlook) next week, we will downgrade growth for next year,” Georgieva said. “And we will point out that the risks of a recession are increasing,” he added.

He pointed out that “things are more likely to get worse before they start to improve,” explaining that the outlook for the international economy has changed dramatically due to the shocks caused by the COVID-19 pandemic, Russia’s invasion of Ukraine and climate disasters across the continent.

“We are experiencing a fundamental shift in the global economy, from a world of relative predictability… to a world that is more fragile – with greater uncertainty, greater economic instability, geopolitical confrontations and more frequent and devastating natural disasters,” he said.

He also pointed out that all the world’s major economies – Europe, China and the United States – are showing signs of slowing, which is reducing demand for exports from emerging and developing countries, which are already being hit hard by high food and energy prices.

The IMF estimates that countries representing about a third of the global economy will see their economy to shrink for at least two consecutive quarters of contraction this year or next year.

“And, even when growth is positive, it will look like a recession because of shrinking real incomes and rising prices,” Kristalina Georgieva said.

On inflation, the IMF chief said it remained high, but central banks should continue to respond decisively, even if the economy slowed.

ECB: Inflation will be off target for a long time

At the same time, the ECB’s chief economist, Philip Lane, estimated that inflation would remain outside the target for a longer time. He mentioned that the ECB projections in September 2022 showed a significant upward revision of inflation during the period up to third quarter of 2023, but not beyond that point in time.

Taking these data into account, the ECB’s chief economist proposed the size of the interest rate increase to be 75 basis points, in order to front-load the transition from an extremely accommodative level of interest rates to levels that will ensure a timely return of inflation to its medium-term objective 2%. According to the minutes, many central bankers agreed with Mr. Lane’s positions, voting in favor of the proposal for a 75 basis point increase.

In the Electronic Secondary Securities Market (HDAT), transactions of 8 million euros were recorded, of which 6 million euros related to purchase orders. The yield on the 10-year bond stood at 4.74% from 4.72% that closed yesterday against 2.08% of the corresponding German bond, resulting in the spread at 2.66% from 2.71%.

In the foreign exchange market, the euro is falling against the dollar, with the result that the European currency is trading in the early afternoon at $0.9821 from $0.9859 when the market opened. The indicative price for the euro / dollar exchange rate announced by the ECB was 0.9860 dollars.

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