The International Monetary Fund pointed out that the global economy will initially recover in 2021, but the situation will become more bleak in 2022, and related risks will begin to emerge. The world economy, which was already weakened by the epidemic, has suffered several shocks since then, and uncertainty has increased.
The IMF's baseline forecast shows that global economic growth will slow from 6.1% last year to 3.2% in 2022, down 0.4 percentage points from the forecast in the April 2022 World Economic Outlook report. Among them, developed economies are expected to grow by 2.5% this year, and emerging market and developing economies are expected to grow by 3.6%.
The report pointed out that U.S. economic growth slowed earlier this year, coupled with declining household purchasing power and tighter monetary policy, the U.S. growth forecast was cut by 1.4 percentage points to 2.3 percent.
Further lockdowns in China and a deepening housing crisis have resulted in a 1.1 percentage point cut in growth forecasts to 3.3%, with significant global spillovers.
Europe is affected by the spillover effect of the war in Ukraine, coupled with the tightening of monetary policy, resulting in a sharp downward revision of growth forecasts for European countries. The euro zone as a whole is expected to grow by 2.6 percent this year, down 0.2 percentage points from the April forecast.
The report also showed that rising food and energy prices and persistent supply-demand imbalances have raised global inflation expectations. Inflation is expected to hit 6.6 percent this year in advanced economies and 9.5 percent in emerging markets and developing countries, which were revised up by 0.9 and 0.8 percentage points, respectively.
The IMF also expects monetary policy to reduce inflation to have a negative impact in 2023, with global output rising by just 2.9%.
For the outlook for the global economy, the International Monetary Fund said downside risks dominate. The organization analyzed that if the new crown epidemic broke out again and brought more anti-epidemic blockade measures, and the crisis in the real estate sector continued to intensify, then China's economic growth may be further suppressed; at the same time, the tightening of global financing conditions may trigger emerging markets and Debt crises in developing economies.
In addition, the war in Ukraine could lead to a sudden stop in European gas imports from Russia, and geopolitical divisions could hinder global trade and cooperation.
If the labor market is tighter than expected, or if inflation expectations are detached from reality, it could be harder than thought to bring inflation down.
Therefore, the IMF also predicts another possible scenario: in a situation where multiple risks emerge at the same time and inflation further rises, global growth may decline to about 2.6% and 2.0% in 2022 and 2023, respectively. %. That would put the two years among the worst 10% of the economic years since 1970.
The International Monetary Fund has stressed that as rising prices continue to squeeze living standards around the world, controlling inflation should be a top priority for policymakers. Tightening monetary policy will inevitably have real economic costs, but delays will only increase the costs further.
The group also noted that targeted fiscal support could help cushion the impact on the most vulnerable, but with the pandemic straining government budgets and the need for a broader macroeconomic policy stance to lower inflation expenses to offset. At the same time, policies addressing the specific impacts of energy and food prices should also focus on those most affected and avoid distorting prices.
The organization reminded that the tightening of monetary conditions will also affect financial stability, which requires careful use of macroprudential tools, which also makes the reform of the debt resolution framework more necessary.
Finally, the International Monetary Fund still calls on countries to increase the vaccination rate of the new crown to prevent the emergence of new mutant strains in the future. There is an urgent need for multilateral action to limit emissions and increase investment to accelerate the green transition in mitigating climate change.