IMF Predicts Smallest Growth Since 1990

The International Monetary Fund (IMF) predicts the global economy will grow less than 3% this year. “With rising geopolitical tensions and still-high inflation, a robust recovery remains elusive,” IMF Fund Managing Director Kristalina Georgieva said Thursday. Over the last few decades, the average growth has been around 3.8%. The IMF predicts growth of about 3% annually for the next five years. 

Developed economies are expected to contract and emerging economies to expand. Georgieva believes that 90% of advanced economies' growth rates will decline this year. She blames higher interest rates weighing down demand in Europe and the U.S. She expects more than half of 2023’s global GDP growth will come from China and India. 

Despite growing pressures in the banking sector, Georgieva said that central banks should continue to raise interest rates to prevent "de-anchoring of inflation expectations."  However, her comments were not without counterbalancing statements. "At the same time, they should address financial stability risks when they emerge – through appropriate provision of liquidity. The key is to carefully monitor risks in banks and non-bank financial institutions [sic], as well as weaknesses in sectors such as commercial real estate.” 

The IMF is not the only international financial institution sounding the alarm. The World Bank predicted the average growth would be 2.2% through 2030. "A lost decade could be in the making for the global economy," said World Bank Chief Economist Indermit Grill. He also stated that the trend could be reversed if drastic policy changes incentivized work, increased productivity, and accelerated investment. The World Bank's policy recommendations prioritize taming inflation, ensuring financial-sector stability, reducing debt, and promoting climate-friendly investments.

The World Bank believes reducing logistical trade costs is the key to increasing global growth. Lowering shipping, logistics, and regulations costs would boost trade. Also, expanding exports of digital products could be a way to reduce logistic costs and spur growth. The increase in digital products would decrease logistic costs, but logistic costs for physical goods are almost 100% correlated with the price of oil. 

Reducing logistic costs means involving OPEC. OPEC and OPEC+ primarily set oil prices. Last week, OPEC+ made a surprise announcement to cut oil production by 1.16 million barrels per day, which caused oil prices to jump more than 6% in one day. Prices have remained stable at around $80 per barrel since the reduction. OPEC+ has been strengthening alliances with China. OPEC+ (which includes Russia) is unlikely to be sympathetic to Europe and U.S. oil price requests. 

Recession fears are growing. The traditional definition of a recession is two consecutive quarters of negative growth. The World Bank warned the rest of the decade may be lost with predictions starker than the IMF. The IMF is stating that the total annual growth will be less than last year. If the IMF is correct, either there will be a sustained period of negative growth (a recession) in 2023 or a market correction event (a crash). 

Both organizations could be wrong, but what if they aren’t? Is your portfolio ready to weather a loss for five to seven years? It may be time to play defense to protect your savings. Most people put 5-20% of their portfolio into precious metals to protect their savings. Some do less, and some do more. Let’s talk about it. Precious metal prices tend to climb during economic uncertainty. In the last month, gold grew more than 10%. Things are more uncertain than ever.

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