Global growth still 'slow, uneven' while risks on downside: IMF researcher

The International Monetary Fund (IMF) forecasted a slowdown in its global growth outlook and anticipates inflation to remain elevated through 2025 for most central banks.

Petya Koeva Brooks, IMF Deputy Director in the Research Department, joins Yahoo Finance's Jennifer Schonberger to discuss the conditions hindering global economic growth, while commenting on the ramifications from global events like the Israel-Hamas conflict's impact on oil prices and China's crackdown on property developers Evergrande (3333.HK, EGRNF) and Country Garden (2007.HK, CTRYF).

"We have downgraded our forecast for China and part of that has been due to the impact of the ongoing real estate crisis," Koeva Brooks says. "And the question is, again, to what extent that would have broader implications. We do think the authorities have the necessary tools to handle the ongoing situation."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

JENNIFER SCHONBERGER: What are the downside risks to your global growth outlook?

PETYA KOEVA BROOKS: Because we have seen a lot of resilience, but growth is still quite slow and uneven, and the risks to this outlook are still very much on the downside. So when we think about the main risks that we see at this point, I would mention the scope for further slowdown in China as one risk. Another one is just the commodity price volatility related to geopolitical developments or climate shocks. And then of course, there is the risk that inflation does turn out to be stickier than what we are currently expecting, which would require further action on the part of central banks.

JENNIFER SCHONBERGER: How do you see the Israel-Hamas war impacting global inflation? We've already seen oil prices spike, global headline inflation has peaked. But do you worry that this conflict could reignite that, seeping into core inflation, and prolonging the central bank's fight against global inflation?

PETYA KOEVA BROOKS: Well, first off, I think we're deeply saddened by the loss of life, and we do hope that there is a speedy deescalation and end the violence. I think it's too early for us to come to a view on the economic impact of what's been happening. We are certainly watching developments very closely. Yes, we have seen some increase in oil prices. And in the past, when in the event of geopolitical conflict, we have seen a lot of volatility in markets.

Now, again, we're not seeing-- we cannot say that right now, but it's certainly a risk that we are going to be watching. And just in terms of the rule of thumb, how we think about the impact of oil prices on inflation, a 10% increase in oil prices that is sustained is expected. Then that would translate into inflation, high inflation at the global level of 0.4.

So again, this is not about predicting the impact of the current situation, but just in general, if one were to see a sustained increase in oil prices, these are the sort of magnitudes that we can think of.

JENNIFER SCHONBERGER: You mentioned China. You've lowered your outlook for China. And the world's second largest economy dealing with a major property crisis. In fact, this morning, we're learning that Evergrande, one of the property lenders, is reportedly on the verge of collapse. It's restructuring, I should say.

Country Garden, another property lender now, saying it won't be able to pay some US dollar denominated debts. What is the risk that this property sector crisis develops into a full blown financial crisis? And what is the prospect of contagion?

PETYA KOEVA BROOKS: Well, we have downgraded our forecast for China and part of that has been due to the impact of the ongoing real estate crisis. And the question is, again, to what extent that would have a broader implications? We do think that the authorities have the necessary tools to handle the ongoing situation. They've taken a lot of measure so far in the real estate market. They've been mostly on the demand side. And our recommendation has been to take action on the supply side to restructure, to really solve the problem in the real estate market.

Now, the implications at this stage are what we have in our baseline. But of course, we are hoping that once the risks are addressed, we're not going to end up in a situation with a contagion within China and beyond.