IMF slashes global growth forecast and raises inflation projections

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The IMF has slashed its global growth forecasts and raised its projections for inflation, warning that the risks to the economic outlook are “overwhelmingly tilted to the downside”.

The downgraded estimates, released on Tuesday, come as the world grapples with the fallout from Russia’s invasion of Ukraine, prolonged disruptions caused by the coronavirus pandemic and rapidly tightening financial conditions, with central banks seeking to contain soaring prices.

The fund now expects growth in gross domestic product to slow to 3.2 per cent in 2022, down 0.4 percentage points from its April estimate and roughly half the pace of last year’s expansion. In 2023, global growth is set to weaken further to 2.9 per cent. Just three months ago, that estimate was 0.7 percentage points higher.

Global inflation is likely to intensify, with the IMF raising its forecasts for this year and next by nearly a full percentage point to 8.3 per cent and 5.7 per cent, respectively.

The multilateral lender said the economic outlook had become much more gloomy and “extraordinarily uncertain”, with inflation at historic peaks and challenges to growth increasing.

Pierre-Olivier Gourinchas, the IMF’s top economist, warned in an interview it would also be an environment that tests the “mettle” of central banks around the world to continue raising interest rates in a bid to restore price stability even if the economy was slowing.

“We are in a very critical moment here,” he said. “It’s easy to cool off the economy when the economy is running hot. It’s much harder to reduce inflation when the economy is close to a recession.”

The risk of a recession is “particularly prominent” in 2023, because by next year growth is expected to bottom out in several countries, stockpiles of savings amassed during the pandemic will have shrunk, and “even small shocks could cause economies to stall”.

(ft.com)