Jul 26, 2022 - Economy

IMF slashes forecasts for global economy in "gloomy" outlook

Photo: Stefani Reynolds/AFP via Getty Images

The International Monetary Fund on Tuesday said global economic growth will slow considerably this year and issued a fresh warning that a number of risks threaten to push the global economy to the brink of a recession.

Why it matters: However grim the economic picture was earlier this year, the outlook now is decidedly worse for the global economy. In new projections, the fund now expects the world will face a dreaded stagflationary mix: considerably slower global growth, with higher inflation rates, for a sustained period.

By the numbers: New IMF forecasts, which it bills as "gloomy and more uncertain," show the global economy growing 3.2% this year — 0.4 percentage points less than what it forecast in April.

  • Next year, world output could fall to 2.9% (roughly the same as 2019). That's 0.7 percentage points lower than what the IMF expected three months ago.
  • Both are a marked slowdown from last year's breakneck pace of 6.1%.

Between the lines: What appeared to be downside risks in April have now become reality, the IMF says — including negative spillover from Russia's invasion of Ukraine, higher inflation across the globe, tighter monetary policy and a more pronounced economic slowdown in China.

  • For the U.S., the fund slashed growth expectations by 1.4 percentage points to 2.3% this year — and by a similar amount next year, which would bring growth to 1% in 2023.
  • Still, on its list of global growth projections for select countries, none contracted outright except Russia. And the fund now sees Russia faring better than initially forecast. In April, they said its economy would shrink 8.5%. Now that figure is 6%.

But the IMF outlines a "plausible" scenario that includes inflation continuing to spiral upward and Russia shutting off gas flows to Europe. In that case, global growth would decline to 2.6% and 2% in 2022 and 2023, respectively — among the worst economic outcomes since 1970.

  • "The world may soon be teetering on the edge of a global recession, only two years after the last one," IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post.
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