The dark clouds that hang over the world economy in the short and medium term have forced the International Monetary Fund (IMF) to update the global growth forecasts it published in April. And the revision is necessarily downward because of a perfect storm: the impact on the price of energy and the commodity market of the war in Ukraine, the runaway inflation in the US and the EU and the increase in the price of money to stop it, as well as new blows from the coronavirus, have once again affected development after a 2021 of lively post-pandemic recovery, with growth of 6.1%.
The new scenario managed by the Fund casts a panorama of global growth of 3.2% this year and 2.9% in 2023, a decrease of 0.4 and 0.7 percentage points, respectively, compared to the estimates published in april. With a growth forecast close to 3%, the chances of a drop in global GDP or global GDP per capita, which are usually associated with the risk of recession, do not greatly worry the Fund, which nevertheless ventures “a significant weakening of activity in the second half of the year”, according to the report presented this Tuesday in Washington.
Thus, it is estimated, for example, that the probability of a recession starting in the seven most advanced economies in the world (G-7) is almost 15% -four times its usual level-, and something more, around 25%. , in the case of Germany, due to its exposure and dependence on Russian gas. For the United States, some indicators, such as the calculation model of the Atlanta Federal Reserve, suggest the possibility of a technical recession (defined as two quarters of negative growth) that could have already begun (GDP contracted 0.4% -1.4% in annualized rate-, in the first quarter; the data of the second will be known this Thursday).
If growth estimates are negative, those relating to the course of inflation fall into the category of pessimism. For this year, the IMF has raised its forecast to a global 8.3%, at an annualized rate, from 6.9% in April. Advanced economies bear the brunt of the calculations this year, with an estimate of 6.6% (9.5% in emerging markets and developing economies), upward revisions of 0.9 and 0.8 points percentages, respectively, on those of April. The inflationary spiral registered in recent months in the United Kingdom (with a forecast of 10.5%, 2.7% more than April) and the euro zone (7.3%, an increase of 2.9%) has had a considerable influence on the adjustment of the Fund. For 2023, the forecasts remain without significant changes, barely a 0.2% increase compared to April, with the hope that the rate hikes of the central banks, with the Federal Reserve, the Bank of England and the Central Bank European in the lead, and the lowering of energy prices have the expected effect. The new partial closure of the Russian energy tap, announced this Monday and therefore not reflected in the report, however, adds a new unknown to the equation.
Regarding GDP, the downward correction of the calculations for China and the United States, as well as for India, which pull down on global growth, reflects the materialization of the risks highlighted in April: a more pronounced slowdown in China due to new lockdowns to tackle covid-19 outbreaks and the worsening of the real estate crisis, as well as the tightening of global financial conditions due to a more drastic than expected increase in interest rates by the main central banks to curb inflation.
Economic slowdown in China
The growth revision for the main advanced economies in 2022 and 2023 is negative. The US economy will grow 1.4 and 1.3 percentage points less than expected this year and next, as a reflection of a slowdown in the first two quarters of this year due to the lower boost in private consumption due to the inflation and tightening of monetary policy. Although the price of crude oil, in a sustained decline in the last month -except for a rebound this Monday-, allows for some hope, the daily reality does not give rise to optimism: the increase in the price of the products of the basic basket is palpable week after week. The lowering of crude oil, moreover, takes exponentially longer to be perceived than its scarcity.
The different exposure of the countries to the underlying developments of the global situation yields mixed results. For emerging market and developing economies, the negative revisions to growth in 2022 and 2023 primarily reflect the sharp slowdown in China’s economy and moderation in India’s growth. China sees its growth reduced by 1.1%, to 3.3%, the lowest growth in four decades excluding the initial phase of the pandemic. India’s forecast loses 0.8% to an enviable 7.4%. For Europe, the IMF forecasts a reduction of 1.5% this year compared to the April report. Latin America and the Caribbean add up, with an upward revision of half a percentage point this year thanks to the strong recovery of the large economies (Brazil, Mexico, Colombia and Chile). Countries in the Middle East, Central Asia, and sub-Saharan Africa show no notable changes.
A plausible alternative scenario in which all the risks mentioned and other added ones materialize, such as “a geopolitical fragmentation that hinders global trade and cooperation,” says the report, would further trigger inflation and reduce world growth to figures around to 2.6% and 2% this year and next, respectively, placing the GDP in the lowest bracket of results since 1970.
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