The IMF says global GDP growth will slow to 3.2% this year from the 3.6% it forecast in April
The International Monetary Fund today again downgraded its forecast for global growth, warning that downside risks from high inflation and the war in Ukraine are materializing and could push the global economy to the brink of recession if left unchecked.
In its revised forecast for the global economic outlook, the IMF says global GDP growth will slow to 3.2% this year from the 3.6% it forecast in April, while it also revised down its forecast for growth in 2023 at 2.9% versus 3.6% in its previous report.
It is noted that the global economy recovered 6.1% in 2021 after the 3.1% recession caused by the pandemic of coronavirus in 2019.
“The outlook has darkened significantly after April. The world may soon be teetering on the brink of a global recession, just two years after the last one,” said the IMF’s chief economist, Pierre-Olivier Gurinchas.
The Fund notes that their forecasts are “highly uncertain” and subject to downside risks due to rising energy and food prices since the war in Ukraine. This would boost inflation and dampen long-term inflation expectations, prompting further monetary policy tightening, the Fund said.
Based on an alternative scenario – described as “plausible” – that envisages a complete cutoff of Russian gas supplies to Europe by the end of the year and a further reduction in Russian oil exports by 30%, the IMF says global growth would slow to 2.6% in 2022 and 2% in 2023, but with growth essentially zero in Europe and the US next year.
The Fund notes that global growth has fallen below 2% only five times since 1970, including the 2020 recession.
For inflation in developed economies, the IMF estimates that it will be much higher this year than it predicted in April, namely 6.6% versus 5.7%, adding that it will remain high for longer than previously forecast. In emerging markets and developing economies, inflation is expected now to reach 9.5% from 8.7% in April.
“Inflation at current levels is a clear risk to current and future macroeconomic stability, and returning it to central banks’ targets should be the first priority for policymakers,” Gurintsas stressed.
He notes that monetary policy tightening will “bite” next year, slowing growth and weighing on emerging markets, but says delaying this process “will only make matters worse,” adding that central banks “they should continue on this path until inflation declines.”
For the Eurozone, the Fund downgraded its forecast to 2.6% from 2.8% in April, due to the inflationary effects of the war in Ukraine. The revision was larger for some countries with greater exposure to the war, such as Germany, for which it forecasts growth of just 1.2% this year from 2.1% in April.
For the US, the Fund confirmed its July 12 forecast of 2.3% growth in 2022 and just 1% in 2023.
The Russian economy is forecast to shrink by 6% in 2022 due to tough Western sanctions, and by 3.5% in 2023, while the Ukrainian economy is estimated to shrink by around 45%, but with uncertainty about this estimate large. .
The IMF significantly lowered its forecast for China’s economic growth to 3.3% from 4.4% in April, citing the coronavirus outbreak and widespread lockdowns in major Chinese cities that have reduced output and exacerbated disruptions to global supply chains. .
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