One-third of the world in recession next year: IMF
Adrian Lowe & Cheyanne EncisoThe West Australian
Tue, 11 October 2022 9:00PM
Treasurer Jim Chalmers .Treasurer Jim Chalmers . Credit: LUKAS COCH/AAPIMAGE
About one-third of the global economy will fall into recession next year as the International Monetary Fund warns of unusually large risks.
Reinforcing Treasurer Jim Chalmers’ repeated suggestions in recent months that major Australian trading partners were headed for a major downturn, the IMF forecast global growth to slow from 6 per cent last year to 3.2 per cent this year, and 2.6 per cent next year.
In its World Economic Outlook released late on Tuesday, the IMF — the world’s peak organisation for economic co-operation — called for member countries to push for productivity reform, saying it could help support central banks in fighting inflation.
It said one-third of the world economy faced two consecutive quarters of negative growth. It also tipped global inflation to peak at 8.7 per cent this year, slide to 6.4 per cent next year and fall back to 3.1 per cent in 2024.
“We welcome the IMF’s support for targeted cost-of-living measures and investments that boost productivity and capacity in the economy, including in renewable energy,” Dr Chalmers said.
The IMF’s outlook comes as new domestic surveys suggest businesses are upbeat about trading conditions — in stark contrast to gloomy consumers despite the lack of any signs spending is being reined in.
But pessimism is beginning to affect the outlook, according to the latest monthly business survey by National Australia Bank released on Tuesday, with confidence below its long-term average.
Consumer sentiment as measured by Westpac, meanwhile, is near record lows but would have been worse had last week’s increase in interest rates been by 50 basis points, as widely expected, rather than 25bp. Confidence in economic conditions fell 4.2 per cent over the month.
Despite the results, North Perth florist Debra Hayes is excited for the rest of the year. With the lead-up to the festive season her business’ busiest period, she expects momentum to return after the uncertainty that shrouded the end of last year.]
Debra Hayes, owner of Debra Hayes Floral in North Perth is confident in the business outlook leading up to Christmas.Debra Hayes, owner of Debra Hayes Floral in North Perth is confident in the business outlook leading up to Christmas. Credit: Michael Wilson/The West Australian
“We’ve got a lot going on this time of the year. It’s all going to be a welcome relief from the uncertainty of COVID,” she said. “Our client base has been amazing.
“It’s lovely that they’ve all still been there for us because we are seeing some businesses struggle.”
Westpac chief economist Bill Evans said the run of rate hikes would keep consumer sentiment depressed. He expects another 100bp by March for a 3.6 per cent peak.
“The 54 per cent of consumers currently bracing themselves for a further ... rise in interest rates are unlikely to have much cause for optimism,” he said.
NAB chief economist Alan Oster said there were tentative signs cost pressures for businesses may have peaked.
The survey revealed forward orders and capacity utilisation remained strong, which Mr Oster said suggested firms were responding to a tight labour market by investing in operations.
“The economy has remained resilient through recent months despite the challenges from higher inflation, rising interest rates and a gloomy global outlook, and there are signs that cost pressures may be easing,” Mr Oster said.
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