The International Monetary Fund forecasts a slowdown in global growth from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023.
The global slowdown in 2022 is as projected in the July 2022 World Economic Outlook (WEO) update, while the forecast for 2023 is lower than projected by 0.2 percentage point. In the revised forecasts, 93% of countries received downgrades to their growth outlook.
More to Come
Aside from the global financial crisis and the peak of the Covid-19 pandemic, this is “the weakest growth profile since 2001,” the IMF said in its WEO published Tuesday morning.
“The worst is yet to come, and for many people 2023 will feel like a recession,” the report said, echoing warnings from the United Nations, the World Bank and many global CEOs.
Cause for Shift
The IMF noted three major events currently hindering growth: Russia’s invasion of Ukraine, the cost-of-living crisis and China’s economic slowdown. Together, they create a “volatile” period economically, geopolitically and ecologically.
More than a third of the global economy will see two consecutive quarters of negative growth, while the three largest economies — the United States, the European Union and China — will continue to slow, the report said.
Inflation Timeline
The IMF anticipates global inflation will peak in late 2022, increasing from 4.7% in 2021 to 8.8%, and that it will “remain elevated for longer than previously expected.”
Global inflation will likely decrease to 6.5% in 2023 and to 4.1% by 2024, according to the IMF forecast. The agency noted the tightening of monetary policy across the world to combat inflation and the “powerful appreciation” of the U.S. dollar against other currencies.
Red Flags
The IMF also highlighted that the risk of monetary, fiscal, or financial policy “miscalibration” had “risen sharply,” while the world economy “remains historically fragile” and financial markets are “showing signs of stress.”
In an interview with the Financial Times, Pierre Olivier Gourinchas, the IMF’s chief economist, said there was as much as a 15% chance global growth could fall below 1% eventually. This level would likely meet the threshold of a recession and would be “very, very painful for a lot of people.”
“We are not in a crisis yet, but things are really not looking good,” he said, adding that 2023 would be the “darkest hour” for the global economy.
The energy crisis is also weighing heavily on the world’s economies, particularly in Europe, and it “is not a transitory shock,” according to IMF’s report. “The geopolitical re-alignment of energy supplies in the wake of Russia’s war against Ukraine is broad and permanent,” the report added. “Winter 2022 will be challenging for Europe, but winter 2023 will likely be worse,” the IMF said.
The U.S. economy is expected to stagnate over the four quarters of 2022 and then maintain a sluggish 1% growth rate in 2023.
More on inflation:
Could Food Prices Ease in 2023? USDA’s New Consumer Food Price Forecast Has a Bit of Good News
Is Out-of-Control Inflation on the Horizon? Watch These Two Indicators
John Phipps: The Inflation We Expect
