Citing Russia’s War, IMF Cuts Global Growth Forecast to 3.6%

A person walks outside of the International Monetary Fund (IMF) building, during the first day of the World Bank/IMF Spring meetings in Washington, Tuesday, April 19, 2022. (AP)
A person walks outside of the International Monetary Fund (IMF) building, during the first day of the World Bank/IMF Spring meetings in Washington, Tuesday, April 19, 2022. (AP)
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Citing Russia’s War, IMF Cuts Global Growth Forecast to 3.6%

A person walks outside of the International Monetary Fund (IMF) building, during the first day of the World Bank/IMF Spring meetings in Washington, Tuesday, April 19, 2022. (AP)
A person walks outside of the International Monetary Fund (IMF) building, during the first day of the World Bank/IMF Spring meetings in Washington, Tuesday, April 19, 2022. (AP)

The International Monetary Fund on Tuesday downgraded the outlook for the world economy this year and next, blaming Russia's war in Ukraine for disrupting global commerce, pushing up oil prices, threatening food supplies and increasing uncertainty already heightened by the coronavirus and its variants.

The 190-country lender cut its forecast for global growth to 3.6% this year, a steep falloff from 6.1% last year and from the 4.4% growth it had expected for 2022 back in January. It also said it expects the world economy to grow 3.6% again next year, slightly slower than the 3.8% it forecast in January.

The war - and the darkening outlook - came just as the global economy appeared to be shaking off the impact of the highly infectious omicron variant.

"The war will slow economic growth and increase inflation," IMF chief economist Pierre-Olivier Gourinchas told reporters on Tuesday.

Now, the IMF expects Russia’s economy - battered by sanctions - to shrink 8.5% this year and Ukraine’s 35%.

US economic growth is expected to drop to 3.7% this year from 5.7% in 2021, which had been the fastest growth since 1984. The new forecast marks a downgrade from the 4% the IMF had predicted at the beginning of the year. Hobbling US growth this year will be Federal Reserve interest rate increases, meant to combat resurgent inflation, and an economic slowdown in key American trading partners.

Europe, heavily dependent on Russian energy, will bear the brunt of the economic fallout from the Russia-Ukraine war. For the 19 countries that share the euro currency, the IMF forecasts collective growth of 2.8% in 2022, down sharply from the 3.9% it expected in January and from 5.3% last year.

The IMF expects the growth of the Chinese economy, the world’s second biggest, to decelerate to 4.4% this year from 8.1% in 2021. Beijing’s zero-COVID strategy has meant draconian lockdowns in bustling commercial cities like Shanghai and Shenzhen.

Some commodity-exporting countries, benefiting from the rising price of raw materials, are likely to defy the trend toward slower growth. For example, the IMF raised its growth forecast for oil producer Nigeria - to 3.4% this year from the 2.7% the fund said it expected back in January.

The world economy had bounced back with surprising strength from 2020’s brief but brutal coronavirus recession. But the rebound presented problems of its own: Caught by surprise, businesses scrambled to meet a surge in customer orders, which overwhelmed factories, ports and freight yards. The result: long shipping delays and higher prices.

The IMF forecasts a 5.7% jump in consumer prices in the world’s advanced economies this year, the most since 1984. In the United States, inflation is running at a four-decade high.

Central banks are raising interest rates to counter rising prices, a move that could choke off economic growth. By driving up prices of oil, natural gas and other commodities, the Russia-Ukraine war has made their task of fighting inflation while preserving the economic recovery even trickier.

The conflict also has "triggered the biggest refugee crisis in Europe since World War II," the IMF noted, and cut supplies and raised prices of fertilizer and grain produced in Russia and Ukraine, threatening food security in Africa and in the Middle East. In a speech last week, IMF managing director Kristalina Georgieva warned of the threat of "more hunger, more poverty and more social unrest."

The IMF emphasized the uncertainty surrounding its forecasts and the difficulty governments and central banks face in trying to adjust to rapidly changing circumstances. "The war may get worse. The sanctions may tighten up. COVID may roam again around the world," Georgieva said on Tuesday. "For policymakers -- a tough time."



China’s October New Lending Tumbles More than Expected despite Policy Support

 A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
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China’s October New Lending Tumbles More than Expected despite Policy Support

 A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)

New bank lending in China tumbled more than expected to a three-month low in October, as a ramp-up of policy stimulus to buttress a wavering economy failed to boost credit demand.

Chinese banks extended 500 billion yuan ($69.51 billion) in new yuan loans in October, down sharply from September and falling short of analysts' expectations, according to data released by the People's Bank of China (PBOC).

Economists polled by Reuters had predicted a fall in new yuan loans to 700 billion yuan last month from 1.59 trillion yuan the previous month and against 738.4 billion yuan a year earlier.

"Corporate financing demand remains weak due to poor profitability," said Luo Yunfeng, an economist at Huaxin Securities. "Credit demand may not pick up soon despite recent central bank policy measures."

The PBOC does not provide monthly breakdowns but Reuters calculated the October figures based on the bank's Jan-October data released on Monday, compared with the Jan-September figure.

The PBOC said new yuan loans totaled 16.52 trillion yuan for the first ten months of the year.

Household loans, including mortgages, dropped to 160 billion yuan in October from 500 billion yuan in September, while corporate loans dipped to 130 billion yuan from 1.49 trillion yuan, according to Reuters calculations based on central bank data.

Chinese policymakers have been working to arrest further weakness in an economy stuttering in recent months from a prolonged property market downturn and swelling local government debt.

Among their goals is to tackle the side-effects from a mountain of debt left from previous stimulus dating back to the 2008-2009 global financial crisis.

China's central bank governor Pan Gongsheng said China will step up counter-cyclical adjustment and affirm a supportive monetary policy stance, a central bank statement showed on Monday, citing a report Pan delivered to the top legislative body last week.

In late September, the central bank unveiled an aggressive stimulus package including rate cuts, and Chinese leaders pledged "necessary fiscal spending" to bring the economy back on track to meet a growth target of about 5%.

MORE STEPS ON THE CARDS

China unveiled a 10 trillion yuan debt package on Friday to ease local government financing strains and stabilize flagging economic growth, as it faces fresh pressure from the re-election of Donald Trump as US president.

New measures planned will include sovereign bonds issuance to replenish the coffers of big state banks, and policies to support purchase of idle land and unsold flats from developers, Finance Minister Lan Foan said.

Analysts at OCBC Bank expect the central bank to deliver another cut in banks' reserve requirement ratio in November or December to support the planned bond issuance.

China watchers are skeptical the steps will produce a near-term boost in economic activity as most of the fresh funds will be used to reduce local government debt, but China's central bank said it will continue supportive monetary policy to create a favorable monetary and financial environment for economic growth.

The PBOC also said it will study and revise money supply statistics to better reflect the real situation of the country's money supply.

Trump's election win could also prompt a stronger fiscal package in expectations of more economic headwinds for China. Trump threatened tariffs in excess of 60% on US imports of Chinese goods, rattling China's industrial complex.

Broad M2 money supply grew 7.5% from a year earlier, central bank data showed, above analysts' forecast of 6.9% in the Reuters poll. M2 grew 6.8% in September from a year ago.

Outstanding yuan loans grew 8.0% in October from a year earlier. Analysts had expected 8.1% growth, the same pace as in September.

The outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to a record low of 7.8% in October, from 8.0% in September. Acceleration in government bond issuance could help boost growth in TSF.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies, and bond sales.

In October, TSF fell to 1.4 trillion yuan from 3.76 trillion yuan in September. Analysts polled by Reuters had expected TSF of 1.55 trillion yuan.