IMF lowers global economic growth forecasts

  • By Zilla Efrat

The International Monetary Fund says world growth will slow from 6.1 per cent last year to 3.2 per cent in 2022 and then drop to 2.9 per cent in 2023.

That is 0.4 percentage points lower than its April 2022 World Economic Outlook (WEO) forecast for 2022 and 0.7 percentage point prediction for 2023.

In the July WEO, IMF chief economist Pierre-Olivier Gourinchas says future risks are overwhelmingly tilted to the downside.

He says the risks include the war in Ukraine leading to a sudden stop of European gas imports from Russia and inflation being harder to bring down than anticipated either if labour markets are tighter than expected or inflation expectations unanchor.

There’s also the risk that tighter global financial conditions could induce debt distress in emerging markets and developing economies or there could be renewed COVID-19 outbreaks and lockdowns.

In addition, a further escalation of the property sector crisis might further suppress Chinese growth and geopolitical fragmentation could impede global trade and cooperation.

“A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 per cent and 2.0 per cent in 2022 and 2023, respectively, would put growth in the bottom 10 per cent of outcomes since 1970,” says Gourinchas.

With increasing prices continuing to squeeze living standards worldwide, he says taming inflation should be the first priority for policymakers.

“Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them.”

Gourinchas says targeted fiscal support can help cushion the impact on the most vulnerable. But with government budgets stretched by the COVID-19 pandemic and the need for a disinflationary overall macroeconomic policy stance, he says such policies will need to be offset by increased taxes or lower government spending.

“Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary,” he says.