July 2022 World Economic Outlook Update: Overcast and many uncertaintieshighlights the significant consequences of the stagnation of the world’s three major economic powers – the United States, China and the major economies of Europe.
The world may soon be tipped to the brink of a global recession – IMF economist
“The outlook has darkened considerably since April,” speak Pierre-Olivier Gourinchas, IMF Economic Advisor and Research Director.
“The world may soon be teetering on the edge of a global recession, just two years after the last recession.”
The baseline forecast for global growth is to slow from 6.1% last year to 3.2% in 2022 – 0.4% lower than forecast in the last Outlook update in April. .
Three important economies
With inflation higher than expected – especially in the US and Europe’s largest economies – global financial conditions are becoming tighter.
In the US, falling household purchasing power and tighter monetary policy will slow growth to 2.3% this year and 1% next year, according to the outlook.
China’s slowdown was worse than anticipated amid COVID-19 outbreaks and closures, with the negative effects of Russia’s invasion of Ukraine continuing.
What’s more, continued shutdowns and a worsening real estate crisis there have pushed growth to 3.3% this year – the slowest in more than four decades, excluding the pandemic.
And in the Eurozone, growth has been revised down to 2.6% this year and 1.2% in 2023, reflecting spillovers from the Ukraine war and tight monetary policy. than.
“Therefore, global output fell in the second quarter of this year,” said Gourinchas.
Inflationary
Despite the global slowdown, inflation has been revised upwards, in part due to rising food and energy prices.
This year, this figure is projected to reach 6.6% in advanced economies and 9.5% in emerging and developing economies – revised upwards of 0.9 and 0.8 percentage points. And it is expected to be even higher.
Broadening inflation in many economies reflects “the impact of cost pressures from disrupted supply chains and historically tight labor markets,” the IMF official said.
Risk goes down
The report points to a number of risks ahead, including war in Ukraine can be end European gas supplies from Russia completely; high prices can cause widespread food insecurity and social unrest; and geopolitical fragmentation can impede global trade and cooperation.
Inflation could remain high if the labor market remains too tight or inflation expectations are too optimistic and costlier than expected.
And new COVID-19 outbreaks and shutdowns threaten to stifle China’s growth.
“In a reasonable alternative scenario where some of these risks occur…inflation would pick up and global growth decelerate further to around 2.6% this year and 2% next year, a pace whose growth rate has fallen below just five times since 1970,” said the IMF economist.
“Under this scenario, both the US and the euro area experience near-zero growth next year, with negative implications for the rest of the world.”
