The International Monetary Fund cuts its forecast for global GDP as the economic outlook grows ‘bleak and uncertain’

The International Monetary Fund on Tuesday lowered its global growth forecasts for 2022 and 2023, calling the global economic outlook “bleak and uncertain”.

The International Monetary Fund now expects the global economy to grow 3.2% this year, before slowing further to a GDP rate of 2.9% in 2023. The revisions point to rating downgrades of 0.4 and 0.7 percentage points, respectively, from April’s forecast.

The Washington-based institute said the revised forecast indicates that the downside risks outlined in its previous report are now materializing. Among those challenges are rising global inflation, a worse-than-expected slowdown in China, and the ongoing fallout from the war in Ukraine.

“The temporary recovery in 2021 was followed by increasingly bleak developments in 2022,” the report said.

“Several shocks have hit a global economy already weakened by the pandemic: higher-than-expected inflation worldwide – especially in the US and key European economies – tightening financial conditions; and a worse-than-expected slowdown in China, reflecting the COVID19 outbreak, lockdowns and more of the negative repercussions of the war in Ukraine.

The projected slowdown is expected to mark the first quarterly contraction in real global GDP since 2020. The International Monetary Fund said a “reasonable” but less likely alternative scenario could see global growth fall to around 2.6% in 2022 and 2.0% in 2023 , which puts global growth in the lowest 10% of results since 1970.

The World Bank last month cut its global growth forecast for 2022 to 2.9% from a previous estimate of 4.1%, citing similar macroeconomic pressures.

The United States, China and India lead the downgrade

Deteriorating growth prospects in the United States, China and India have led to the International Monetary Fund’s downward revision.

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, lower household purchasing power and tighter monetary policy.

China’s economy grew 1.1 percentage points lower than previously estimated, after the extended Covid lockdown and a deepening real estate crisis. The world’s second-largest economy is now expected to grow by 3.3% in 2022 – its lowest rate in four decades, excluding the initial fallout from the Covid-19 crisis in 2020.

The International Monetary Fund cut its global growth forecast in July on the back of higher global inflation, a worse-than-expected slowdown in China and the ongoing fallout from the war in Ukraine, which is fueling the food and energy crisis.

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India’s forecast was lowered by 0.8 percentage point to 7.4%, largely due to unfavorable external conditions and an increased pace of policy tightening.

Meanwhile, the eurozone forecast was lowered by 0.2 percentage point to 2.6%, although the International Monetary Fund said the larger spillovers from the war in Ukraine are likely to be hit hardest in 2023, particularly in the major economies of Germany, France and Spain.

The International Monetary Fund said the Russian economy contracted less than expected in the second quarter despite widespread economic sanctions over its unprovoked invasion of Ukraine. Its forecast for 2022 was revised up 2.5 percentage points, although the estimated growth rate remains negative at -6.0%.

Global inflation continues to rise

It comes as inflation continues to rise into 2022, led by rising food and energy prices.

Global inflation is now expected to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies this year – upward revisions of 0.9 and 0.8 percentage points, respectively.

“It will take longer for inflation to go away and the overall amount of inflation is expected to come later this year,” Tobias Adrian, financial advisor and director of the IMF’s Money and Capital Markets Department, told CNBC on Tuesday. afternoon.

“We expect a fairly shallow recession. A near zero growth recession for next year. That’s in the opposite scenario, it’s not a very severe recession,” like the one we saw in the aftermath of Covid-19 and the 2008 global recession, he added.

With soaring prices fueling the global cost of living crisis, the International Monetary Fund said curbing inflation should be policymakers’ first priority.

“More tight monetary policy will inevitably have real economic costs, but delays will only exacerbate them,” the report said.

She added that policies aimed at addressing the rise in energy and fuel prices should focus on the most vulnerable groups without compromising overall prices.

For months now, central banks have been gradually adopting tighter monetary policy. The European Central Bank last week joined the likes of the US Federal Reserve and the Bank of England in raising interest rates – the first such move in 11 years.

However, inflation remains flat, reaching 40-year highs in the US and UK last month.

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