The International Monetary Fund (IMF) on Tuesday (July 26) slashed its global growth predictions for the financial years 2022 and 2023. The IMF projected the global economy to slow further to 3.2 per cent in 2022 from last year’s 6.1 per cent.
Global growth at 3.2 per cent in 2022 and moderating to 2.9 per cent in 2023 is lower than projected in the April 2022 World Economic Outlook by 0.4 and 0.7 percentage points, respectively.
In its World Economic Outlook update July 2022, released on Tuesday, the monetary body said that the global economy, which is still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain times.
IMF chief economist Pierre-Olivier Gourinchas said: “The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one.”
IMF pointed out that the stalling of growth in the US, China and Europe has major consequences on the global outlook.
As per IMF, due to food and energy prices and lingering supply-demand imbalances, global inflation is anticipated to reach 6.6 per cent in advanced countries and 9.5 per cent in developing economies upward revisions of 0.9 and 0.8 percentage points, respectively.
In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 per cent.
For the US, the fund expects growth of just 2.3 per cent amid slower consumer spending and rising interest rates.
Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States, with the country’s growth projected to slow down to 2.3 per cent in 2022 from 5.7 per cent last year.
In Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy
It said for emerging markets and developing economies, the negative revisions to growth in 2022-23 reflect mainly the sharp slowdown of China’s economy and the moderation in India’s economic growth.
China’s economy is also predicted to slow dramatically in 2022, expanding just 3.3 per cent amid continuing Covid concerns and a “worsening” property crisis, the report suggested.
In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points to 3.3 per cent growth in 2022, with major global spillovers.
The IMF on Tuesday cut India’s growth rate by 0.8 percentage points to 7.4 per cent for the fiscal year 2022, reflecting “mainly less favourable external conditions and more rapid policy tightening.
The outlook for India has been revised down by 0.8 percentage points, to 7.4 per cent. For India, the revision reflects mainly less favourable external conditions and more rapid policy tightening, the Outlook said.
India’s 7.4 per cent GDP growth for the fiscal year 2022 is the second highest growth projection after Saudi Arabia’s 7.6 per cent.
India, whose GDP was projected at 8.7 per cent in 2021, will see economic growth slow down to 6.1 per cent in the fiscal year 2023, the outlook said.
In April, the IMF had projected a fairly robust growth of 8.2 per cent for India in 2022, which would have made it the fastest-growing major economy in the world, almost twice faster than China’s 4.4 per cent.
IMF said that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers.
Tighter monetary policy will inevitably have real economic costs, but the delay will only exacerbate them. Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending, it said.
Further, tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary.
Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices. And as the pandemic continues, vaccination rates must rise to guard against future variants. Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition, it said.
(With inputs from agencies)