In this article, we will try to give a summary from the October 2022 report titled “World Economic Outlook Countering the Cost-of-Living Crisis” published by the IMF. The full report can be accessed at the link below.
https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022
The world economy is facing a series of tumultuous challenges. Inflation is higher than it has been in several decades, deteriorating financial conditions in most regions, the Russian invasion of Ukraine and the ongoing COVID-19 pandemic are all putting severe pressure on the outlook. The normalization of monetary and fiscal policies, which have provided unprecedented support during the pandemic, is cooling demand as policymakers aim to bring inflation back to target. However, a growing proportion of economies are slowing in growth or shrinking entirely.
The future health of the global economy crucially depends on the successful adjustment of monetary policy, the course of the war in Ukraine and the possibility of further supply-side disruptions related to the pandemic, for example in China. Global growth is expected to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This reflects the weakest growth profile and significant slowdowns since 2001, excluding the global financial crisis and the acute phase of the COVID-19 pandemic. for the largest economies: US GDP contraction in the first half of 2022, Eurozone contraction in the second half of 2022 and ongoing COVID-19 outbreaks and quarantines in China with the growing housing crisis.
Almost a third of the global economy faces two consecutive quarters of negative growth. Global inflation is expected to increase from 4.7 percent in 2021 to 8.8 percent in 2022, but decline to 6.5 percent in 2023 and 4.1 percent in 2024. Inflation surprises to the upside, which are more volatile in emerging and developing countries, are most common in advanced economies. economies. Risks to the outlook remain unusually large and on the downside. Monetary policy can misjudge the right stance on reducing inflation.
Political paths in the major economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions. Further energy and food price shocks could make inflation last longer. A global tightening of financing conditions could trigger a widespread debt crisis in emerging markets. Russia’s suspension of gas supplies could reduce production in Europe. A resurgence of COVID-19 or new global health scares could slow growth further. The deepening of the real estate crisis in China could spill over into the domestic banking sector and weigh heavily on the country’s growth with negative cross-border effects. And geopolitical fragmentation can impede trade and capital flows, further complicating climate policy cooperation.
The balance of risks is clearly skewed to the downside, with about a 25 percent chance of global growth falling below 2.0 percent a year later — the 10th percentile of global growth since 1970. Price stabilization course. Defending against these risks starts with keeping monetary policy on course to restore price stability.
As will be shown in Chapter 2, anticipation and aggressive monetary tightening are key to preventing inflation from stabilizing as households and firms base their wage and price expectations on recent inflation experiences. Fiscal policy’s priority is to protect vulnerable groups through targeted short-term support to ease the burden of the cost-of-living crisis being felt around the world. But their general stance should remain tight enough to keep monetary policy on course.
Tackling the deepening sovereign debt crisis, caused by slower growth and higher borrowing costs, requires a significant improvement in the debt management environment. As financing conditions tighten, macroprudential policy needs to be mindful of systemic risks. Intensive structural reforms to improve efficiency and economic capacity will ease supply constraints while supporting monetary policy in the fight against inflation. Actions to accelerate the green energy transition will bring long-term returns on energy security and the costs of ongoing climate change. As Chapter 3 shows, by taking the right actions step by step, the macroeconomic costs will remain manageable over the next eight years. Finally, successful multilateral cooperation will prevent fragmentation that could wipe out the economic welfare gains of 30 years of economic integration.
