The global economic outlook has become “gloomy and more uncertain”, according to the latest forecasts from the International Monetary Fund (IMF), with inflation, Covid, the war in Ukraine and China’s uncertain economic outlook were again cited as major factors.
The Fund chopped its global forecasts to 3.2% for this year from 3.6% in April and lowered its 2023 forecast to 2.9%, down 0.7% from the April estimate.
Next year’s estimate is just above the 2.5% growth rate the IMF regards as a global recession.
But this year could see another downward lurch if Russia cuts off gas to Europe – growth could tumble to 2.6%.
And that in turn would see 2023’s outlook slashed even deeper – to just 2% growth That level of growth has happened just five times since 1970, according to the Fund.
World growth rebounded last year to 6.1% after the pandemic crushed global output in 2020 with a 3.1% contraction.
The IMF said the lowered outlook indicated that the downside risks outlined in its April World Economic Outlook were now materialising.
These risks include soaring global inflation, a worse-than-expected slowdown in China, the pandemic and the ongoing impact of Russia’s war in Ukraine.
“A tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022,” the IMF said in the updated outlook report.
“Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide — especially in the United States and major European economies — triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine,” it added.
The anticipated slowdown would mark the first quarterly contraction in global real GDP since 2020.
“The outlook has darkened significantly,” Pierre-Olivier Gourinchas, the Fund’s director of research, wrote in an IMF blog post Tuesday.
“The world may soon be teetering on the edge of a global recession, only two years after the last one.”
The World Bank last month slashed its 2022 world economic growth forecast to 2.9% from an earlier estimate of 4.1%, blaming similar pressures.
In the United States, consumers have found themselves with less purchasing power as prices rise — leading to lower-than-expected consumer spending, the IMF noted.
That’s shown up in the Walmart downgrade for the rest of this year which saw its shares fall 7.6% on Tuesday and helped pushed Wall Street lower overall.
The IMF confirmed its July 12 forecasts of 2.3% growth in 2022 for the US and a very weak 1.0% for 2023, which it previously cut twice since April because of slowing demand.
China is struggling with Covid and lockdowns have continued to hamper the economy, triggering a slowdown that “has been worse than anticipated,” the Fund commented.
As a result the IMF has cut its forecast for Chinese growth this year to just 3.3% from 4.4% in April and the official forecast of “about 5.5%’. If growth of 3.3% is achieved this year, it would be the slowest rate of expansion in four decades, outside the 2020 pandemic year.
In Europe, the cost of Russia’s invasion of Ukraine has been higher than expected with the spike in energy prices, “weaker consumer confidence, and slower momentum in manufacturing resulting from persistent supply chain disruptions,” the IMF said.
The IMF cut its eurozone growth outlook for 2022 to 2.6% from 2.8% in April, reflecting the impact of the war in Ukraine.
But forecasts were cut more deeply for some countries with more exposure to the war, including Germany, which saw its 2022 growth outlook cut to 1.2% from 2.1% in April.
The IMF said it now expects inflation this year in advanced economies to reach 6.6%, up from 5.7% in the April forecasts.
Inflation in emerging market and developing countries is now expected to reach 9.5% in 2022, up from 8.7% in April.
The fund said inflation would remain elevated for longer than previously anticipated.