The International Monetary Fund (IMF) cut global growth forecasts again, warning that downside risks from high inflation and the Ukraine war were materializing and could push the world economy to the edge of recession if left unchecked.
Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April, the IMF said in an update of its World Economic Outlook. It added that world GDP actually contracted in the second quarter due to downturns in China and Russia.
The Fund cut its 2023 growth forecast to 2.9% from the April estimate of 3.6%, citing the impact of tighter monetary policy, possible to edge of recession.
World growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic crushed global output in 2020 with a 3.1% contraction.
The Fund said its latest forecasts were “extraordinarily uncertain” and subject to downside risks from Russia’s war in Ukraine spiking energy and food prices higher. This would exacerbate inflation and embed longer-term inflationary expectations that would prompt further monetary policy tightening.
The IMF said it now expects the 2022 inflation rate in advanced economies to reach 6.6%, up from 5.7% in the April forecasts, adding that it would remain elevated for longer than previously anticipated. Inflation in emerging market and developing countries is now expected to reach 9.5% in 2022, up from 8.7% in April.
Monetary policy tightening will “bite” next year, slowing growth and pressuring emerging market countries, but delaying this process “will only exacerbate the hardship,” he said, adding that central banks “should stay the course until inflation is tamed.”
