The International Monetary Fund(IMF) has cut global growth forecasts again on July 26. The IMF has issued a warning that downside risks from increasing inflation and the Ukraine war were materializing and could push the world economy to the brink of recession if left unchecked.
In the month of April, IMF had forecasted the global GDP at 3.6%, in their latest announcements the same forecast has been cut down to 3.2% in the IMF’s latest World Economic Outlook.
World growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic dented the global output in 2020 with a 3.1% contraction. “The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” IMF Chief Economist Pierre-Olivier Gourinchas said in a statement.
The IMF’s July update on the World Economic Outlook titled “Gloomy and More Uncertain” points to “higher-than-expected inflation,” and a contraction of global output as indicators of incoming poor economic growth. The laconic update of the IMF states that there are likely economic slowdowns ahead.
Impact on Crypto
In recent times there has been a growing interconnectedness between virtual assets and financial markets. Before the COVID pandemic, crypto assets such as Bitcoin and Ether showed very little correlation with major stock indices. They were considered to be tools to act as a hedge against volatilities in other mainstream asset classes. But this changed after the extraordinary central bank crisis responses of early 2020. Crypto prices and US stocks both surged amid easy global financial conditions and greater investor risk appetite.
On the very day IMF released released its world economic outlook, $BTC dipped below $21,000. This dip came in after the markets were seeing a recovery of sorts after BTC had crossed the $23,000 mark after a stagnant period of 37 days!
The International Monetary Fund says crypto markets could see further selling pressure and more failures of coin offerings, including stablecoins.
“We could see further selloffs, both in crypto assets and in risky asset markets, like equities,” Tobias Adrian, Director of Monetary and Capital Markets for the IMF, told Yahoo Finance in an interview. “There could be further failures of some of the coin offerings — in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail.”
If a recession ensues, crypto would drop even further, said Adrian.
IMF was quoted as saying:
Our analysis suggests that crypto assets are no longer on the fringe of the financial system. Given their relatively high volatility and valuations, their increased co-movement could soon pose risks to financial stability especially in countries with widespread crypto adoption. It is thus time to adopt a comprehensive, coordinated global regulatory framework to guide national regulation and supervision and mitigate the financial stability risks stemming from the crypto ecosystem.
Well, a lot can be expected in the coming weeks!
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