The International Monetary Fund on Tuesday cut its global growth forecasts for 2022 and 2023, calling the global economic outlook “gloomier and more uncertain.”
The IMF now expects the global economy to grow by 3.2% this year before slowing further to 2.9% of GDP in 2023. The revisions mark declines of 0.4 and 0.7 percentage points respectively from April forecasts.
The Washington-based institute said the revised outlook showed that the downside risks outlined in its earlier report were already materializing. Among those challenges are rising global inflation, a worse-than-expected slowdown in China and the lingering effects of the war in Ukraine.
“The tentative recovery in 2021 was followed by increasingly gloomy developments in 2022,” the report said.
“Several shocks hit a global economy already weakened by the pandemic: higher-than-expected global inflation — especially in the United States and major European economies — triggering tighter financial conditions; worse-than-expected slowdown in China reflecting COVID19 outbreaks and lockdown; and additional negative consequences of the war in Ukraine,” he added.
The expected slowdown would mark the first quarterly contraction in global real GDP since 2020. A “plausible” but less likely alternative scenario could see global growth fall to around 2.6 percent in 2022 and 2.0 percent in 2023, the IMF said, putting global growth at the bottom 10% of 1970 results.
Last month, the World Bank cut its global growth forecast for 2022 to 2.9 percent from an earlier estimate of 4.1 percent, citing similar macroeconomic pressures.
USA, China, India lead declines
Worsening growth prospects in the US, China and India led to downward revisions by the IMF.
The US GDP forecast was cut by 1.4 percentage points to 2.3%, driven by weaker-than-expected growth in the first half of 2022, reduced household purchasing power and tightening of monetary policy.
China’s economy was seen growing 1.1 percentage points less than previous estimates, following prolonged Covid lockdowns and a deepening real estate crisis. The world’s second-largest economy is now expected to grow by 3.3% in 2022 – its slowest growth in four decades, barring the initial effects of the Covid-19 crisis in 2020.
The IMF cut its global growth forecast in July amid rising global inflation, a worse-than-expected slowdown in China and the lingering effects of the war in Ukraine, which is fueling a food and energy crisis.
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The forecast for India was cut by 0.8 percentage points to 7.4%, largely due to less favorable external conditions and faster policy tightening.
Meanwhile, the eurozone’s outlook was cut by 0.2 percentage points to 2.6%, although the IMF said the wider fallout from the war in Ukraine was likely to hit even harder in 2023, particularly in the major economies of Germany, France and Spain.
Russia’s economy shrank less than expected in the second quarter despite wide-ranging economic sanctions over the unprovoked invasion of Ukraine, the IMF said. Its forecast for 2022 was revised upwards by 2.5 percentage points, although the expected growth rate remains negative at -6.0%.
Global inflation continues to rise
This comes as inflation continues to rise until 2022, led by rising food and energy prices.
Global inflation is now forecast to reach 6.6% in advanced economies and 9.5% in emerging and developing economies this year – an upward revision of 0.9 and 0.8 percentage points respectively.
As rising prices fuel a global cost-of-living crisis, the IMF said taming inflation should be policymakers’ number one priority.
“Tighter monetary policy will inevitably have real economic costs, but a delay will only make them worse,” it said.
He added that policies to deal with higher energy and fuel prices should focus on the most vulnerable groups without distorting overall prices.
For months now, central banks have been gradually adopting a tighter monetary policy. Last week, the European Central Bank joined the US Federal Reserve and the Bank of England in raising interest rates, the first such move in 11 years.
Yet inflation has held steady, hitting 40-year highs in the US and UK last month.
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