The growth projection of the global economy tilted overwhelmingly to the downside for the coming year. Recently, the International Monetary Fund cut its global growth projections for 2022 and 2023. It not only dubbed the world’s economic outlook ‘gloomy and more uncertain’ but informed it expects it to grow by only 3.2 percent this year.
The current forecasts for growth raised the prospect of a more pronounced slowdown as the IMF estimated the growth previously in April of 3.6 percent. But this time, the fund downgraded its expectation for growth to 3.2 percent. The global growth weakens further to 2.9 percent in the coming year. Three months ago, the projections were 0.4 and 0.7 percentage points higher. It added the global economy has shrunk for the first time since 2020.
The world may soon be teetering on the edge of a global recession - International Monetary Fund.
It’s not a single shock that hit the world economy weakened by the pandemic. Russia’s invasion of Ukraine, China’s second lockdown, higher-than-expected inflation worldwide, and further covid outbreaks are among the factors that triggered the slowest economic growth around the globe. The outlook has darkened significantly since April, said the IMF’s Economic counselor, Pierre-Olivier Gourinchas. “The world may soon be teetering on the edge of a global recession, only two years after the last one.” He further informed about the downside risks to the global economy that could result in even poor performance. Some among them include:
Global inflation is likely to intensify.
The forecasts by IMF around inflation have also slashed the hopes for relief. It raised its forecast for global inflation for this year and 2023 by nearly a percentage point to 8.3 percent and 5.7 percent, respectively. Researchers at the IMF describe the situation around inflation: “Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances, and it is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies this year.” IMF further added the economic outlook became much more gloomy and “extraordinarily uncertain” with inflation at peaks and challenges to growth increasing.
Which countries lead the downgrades?
The worsening growth prospects in the United States, China, and India drove the IMF’s downward revisions. Concerning America, the GDP growth is weaker than expected in the first half of 2022 amid the reduced household purchasing power and tightening monetary policy. The outlook also lowered by 1.4 percent compared with the last predictions. China’s economy is observing growth 1.1 percentage points short of previous estimates, following extended Covid lockdowns and a deepening real estate crisis. At its lowest clip, the world’s second-largest economy anticipates growth of 3.3 percent in 2022.
Less favorable external conditions and rapid policy tightening cut India’s forecast by 0.8 to 7.4 percent. Parallelly, Russia’s economy contracted less than expected in the second quarter. The IMF said it comes despite wide-reaching economic sanctions over its unprovoked invasion of Ukraine. Its 2022 projection was revised up 2.5 percentage points, though its estimated growth rate remains negative at -6.0 percent.
This country is on the path to the slowest growth of G7 countries in 2023
The IMF further warned the United Kingdom is to trail with the slowest growth among the G7 group of the world’s wealthy economies. The GDP is now only expected to rise by 0.5% in 2023. Concerning price hikes, the combination of Covid, Brexit, and the war in Ukraine pushed UK inflation, which hit 9.4 percent in June, higher than that of its peers in the G7 group of wealthy nations, including the United States, Germany, and France. It also revised its expectation for UK inflation to average 10.5 percent this year, up from 7.8 percent in its April forecast, because of the country’s exposure to rises in natural gas prices as a net importer of energy.
What should be the top priority now?
Inflation across the world continues to track higher throughout the year. With rising prices fueling a global cost-of-living crisis, the IMF said taming inflation should be policymakers’ number one priority. The report raised the alarm about how ‘Tighter monetary policy will inevitably have real economic costs, but the delay will only exacerbate them.’
The recent update by IMF to its “World Economic Outlook” report informed of a dire prediction for the world economy. The primary reasons cited for the revision in growth expectations were the damage done to European economies from the Russian-Ukrainian War, the new covid outbreak, more lockdowns in China, inflation eating into consumers’ spending power, and tightening monetary policy around the globe. The report mentioned that if Russia abruptly stopped all gas flows to Europe, inflation will not subside as expected. If widespread lockdowns continue in China, the world economy could witness growth as low as 2.6 percent in 2022 and 2.0 percent in 2023.
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