The IMF on Tuesday slightly lowered its outlook for the global economy, while predicting that most countries would avoid a recession this year despite economic worries and geopolitical strains.
Concerns over high inflation, rising geopolitical tensions and financial stability hang over the updated forecasts, with the effects of Russia’s invasion of Ukraine continuing to dampen growth and drive up consumer prices in many countries.
Persistent economic concerns could overshadow plans by the IMF and World Bank to promote an ambitious reform and fundraising agenda at this year’s spring meetings.
Photo: AFP
In its World Economic Outlook report, the IMF predicted the global economy would grow 2.8 percent this year and 3 percent next year, a decline of 0.1 percentage points from its January forecasts.
The IMF’s expectations for the US were slightly rosier.
It said that the world’s largest economy would grow 1.6 percent this year, marginally higher than previously predicted.
“The global economy remains on track for a gradual recovery from the COVID-19 pandemic and Russia’s war in Ukraine,” IMF chief economist Pierre-Olivier Gourinchas told a news conference.
He added that “the massive and synchronized tightening of monetary policy by most central banks” had begun to bring inflation lower.
However, serious risks relating to financial stability have emerged, he said, referring to banking turmoil unleashed last month after the dramatic collapse of California-based lender Silicon Valley Bank.
The IMF expects global inflation to slow to 7 percent this year, down from 8.7 percent last year. It is expected to fall to 4.9 percent next year.
This year’s and next year’s inflation forecasts were revised upward and remain significantly above the 2 percent target set by the US Federal Reserve and other central banks, suggesting that policymakers have a long way to go before inflation is under control.
However, almost all advanced economies are expected to avoid a recession this year and next.
Alongside growth in the US, the eurozone is forecast to expand 0.8 percent this year and 1.4 percent next year — led by Spain, which is expected to post 1.5 percent growth this year and 2 percent growth next year.
However, the area’s biggest economy, Germany, is now expected to contract 0.1 percent this year, joining the UK, the only other G7 member expected to enter recession this year.
The picture is more positive among emerging market economies, with China forecast to grow 5.2 percent this year, but growth is predicted to slow to 4.5 percent next year, as the impact of its reopening from the COVID-19 pandemic fades.
India’s forecast was downgraded from January, but it is still predicted to expand 5.9 percent this year and 6.3 percent next year, providing stimulus to the global economy.
Russia is now expected to grow 0.7 percent this year, up 0.3 percentage points from January’s forecast, despite its invasion of Ukraine.
The IMF raised its Russia forecast on the “very strong source of revenues” from high energy prices last year and during the first half of this year, Gourinchas said.
Looking forward, the IMF predicts that global growth would fall to 3 percent in 2028, its lowest medium-term forecast since the 1990s.
Slowing population growth and the end of the era of economic catch-up by several countries, including China and South Korea, are a large part of the expected slowdown, said Daniel Leigh, who heads the world economic studies division in the IMF’s research department.
Other issues include concerns about low productivity in many countries, Leigh said.
“A lot of the low-hanging fruit was picked,” he said ahead of the report’s publication.
“On top of that now, with the geopolitical tensions and fragmentation, this is going to also weigh on growth,” he said.
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