The International Monetary Fund lowered its global growth forecasts for 2022 and 2023 on Tuesday, calling the world’s economic outlook “bleak and more uncertain.”
The IMF now expects the global economy to grow by 3.2% this year, before slowing further to 2.9% GDP in 2023. The revisions indicate a downward revision of 0.4 and 0.7 percentage points respectively from the Projections for April.
The Washington-based institute said the revised outlook indicated that the downside risks outlined in the earlier report are now materializing. Those challenges include rising global inflation, a worse-than-expected slowdown in China and the lingering effects of the war in Ukraine.
A cautious recovery in 2021 was followed by increasingly gloomy developments in 2022, the report said.
“Several shocks have hit a global economy already weakened by the pandemic: higher-than-expected inflation globally – especially in the United States and major European economies – leading to tighter financial conditions; a worse-than-expected slowdown in China, due to COVID19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine,” it added.
The projected slowdown would mark the first quarterly contraction in global real GDP since 2020. In a “plausible” but less likely alternative scenario, global growth could fall to around 2.6% in 2022 and 2.0% in 2023, it said. the IMF, which puts global growth in the bottom 10% of results since 1970.
The World Bank lowered its 2022 global growth outlook to 2.9% from a previous estimate of 4.1%, citing similar macroeconomic pressures.
Deteriorating growth prospects in the US, China and India drove the IMF’s downward revisions.
The outlook for US GDP was lowered 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 monetary policy tightening.
The Chinese economy grew 1.1 percentage points less than earlier estimates, after prolonged Covid lockdowns and a deepening real estate crisis. The world’s second-largest economy is expected to grow by 3.3% in 2022 – the lowest level in four decades, excluding the first effects of the Covid-19 crisis in 2020.
The IMF lowered its global growth outlook in July amid rising global inflation, a worse-than-expected slowdown in China and the lingering effects of the war in Ukraine, fueling a food and energy crisis.
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India’s forecast was lowered by 0.8 percentage points to 7.4%, largely due to less favorable external conditions and more rapid policy tightening.
Meanwhile, the outlook for the eurozone was lowered 0.2 percentage point to 2.6%, although the IMF said the wider fallout from the war in Ukraine is likely to hit further in 2023, particularly in the major economies of Germany, France and France. Spain.
The Russian economy shrank less than expected in the second quarter, despite severe economic sanctions over the unprovoked invasion of Ukraine, the IMF said. The 2022 forecast has been revised upwards by 2.5 percentage points, although the estimated growth rate remains negative at -6.0%.
It’s because inflation continues to track higher through 2022, led by rising food and energy prices.
Global inflation this year is expected to be 6.6% in advanced economies and 9.5% in emerging markets and emerging economies, an upward revision of 0.9 and 0.8 percentage points, respectively.
With soaring prices fueling a global cost of living crisis, the IMF said taming inflation should be the number one priority of policymakers.
“Tighter monetary policies will inevitably incur real economic costs, but delaying them will only exacerbate them,” he said.
It added that policies to address higher energy and fuel prices should target the most vulnerable without disrupting overall prices.
Central banks have been pursuing an increasingly tight monetary policy for months. Last week, the European Central Bank joined the US Federal Reserve and the Bank of England, among others raising interest rates – the first such step in 11 years.
Yet inflation has persisted, reaching its 40-year high in The United States and the UK last month.