The IMF forecasts weak growth

On 11 April 2023 the International Monetary Fund published forecasts of weak global growth for the year and warned that the March banking crisis could tighten credit more than expected. The institution spoke of an economy that was advancing, but with little strength and accumulated risks.

The IMF’s forecasts are not prophecies, but they serve as a reference for governments, companies and banks when planning. When an institution of this weight describes a fragile environment, the practical message for any company is that it makes sense to allow a larger safety margin in its sales, cost and, above all, financing plans. The practical usefulness of these reports lies less in the exact growth figure than in the general direction and the risks they point to, which help gauge how much caution to build into one’s own decisions.

What the IMF said

The institution described a picture of weak global growth, with persistent inflation and new financial risks after the banking tensions of March. It did not speak of a generalised recession, but of a fragile scenario, sensitive to any new shock.

The combination of factors was uncomfortable. Inflation that does not ease forces central banks to keep rates high, and high rates slow investment and consumption. If tensions in the financial system are added to that, the result is an economy that grows less and runs a greater risk of negative surprises. Global growth forecasts are revised several times a year as data change, and it is not unusual for one version to correct the previous one. What matters is understanding which factors drive the revisions.

Credit more expensive and scarcer

The key warning was that credit could tighten more than expected. When banks lend more cautiously, they demand more guarantees, charge more and take longer to decide. Small and medium-sized companies are the first to notice, because they tend to depend more on bank financing and have fewer alternatives.

The mechanism is simple. After a banking crisis, institutions tend to protect their capital and liquidity, and they do so by granting fewer loans or making them dearer. That reduces corporate investment and household consumption, and can feed the very economic weakening that was meant to be avoided. Tighter credit does not affect all companies equally. Those with good results, little debt and an established relationship with their lender usually keep access, while younger or more indebted ones notice it sooner.

What to do

With credit more expensive and scarcer, companies that relied on external financing had to plan further ahead. The relationship with the bank became strategic again: it is not just a matter of asking for money when it is needed, but of keeping up a continuing conversation that builds trust.

It is worth giving the bank financial information regularly, watching debt maturities and not waiting until the last moment to renew lines or refinance. It may also be useful to study other sources of funding, such as factoring, leasing or publicly guaranteed loans, depending on the case. It is a decision best taken with the adviser and with time. A good habit is to prepare, before it is needed, a folder with the accounts of recent years, cash-flow forecasts and a simple explanation of what the funds will be used for, so that any application can be submitted quickly. And it is worth exploring alternatives to traditional bank financing in good time, even if they are not the first choice, so as not to depend on a single route if it closes or becomes unexpectedly dearer.

Financing is easier to obtain when it is not needed urgently.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.