The dollar's strength is not necessarily a boon. As is always the case, some are happy about such a turn of events in the foreign exchange market, while others express concerns over a sharp rise in the value of the US currency. For instance, the International Monetary Fund considers a stronger dollar a major challenge in the current situation.
According to the IMF, there are two main reasons for concern. Firstly, persistent strength in the greenback makes imported goods more expensive as most of them are invoiced in dollars. This in turn adds to the already intense inflationary pressures in many countries. Secondly, the dollar’s surge is tightening financial conditions. Many corporations and governments have high levels of dollar-denominated debt. As the exchange rate rises, debt service payments have become unaffordable for a number of states.
“A stronger dollar only compounds these pressures, especially for some emerging markets and many low-income countries that are already at a high risk of debt distress,” IMF chief economist Pierre-Olivier Gourinchas said.
Besides, the IMF updated its 2022 growth forecasts for the two largest world economies, the United States and China. The agency slashed its growth estimates to 1.6%, down from 2.3% seen in July, and to 3.2% from 3.3% for the United States and China respectively. Also, the IMF revised its economic outlook for Russia. Now the country's economy is expected to contract by 3.4% in 2022 instead of 6% projected earlier. Next year, Russia's GDP is anticipated to decline by 2.3% compared to a 3.5% contraction the experts forecast in July.
