IMF Cuts Global Growth Outlook, Warns High Inflation Threatens Recession

Customers dine at a restaurant in a shopping area in Beijing, China July 25, 2022. (Reuters)
Customers dine at a restaurant in a shopping area in Beijing, China July 25, 2022. (Reuters)
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IMF Cuts Global Growth Outlook, Warns High Inflation Threatens Recession

Customers dine at a restaurant in a shopping area in Beijing, China July 25, 2022. (Reuters)
Customers dine at a restaurant in a shopping area in Beijing, China July 25, 2022. (Reuters)

The International Monetary Fund cut global growth forecasts again on Tuesday, warning that downside risks from high inflation and the Ukraine war were materializing and could push the world economy to the brink of recession if left unchecked.

Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April, the IMF said in an update of its World Economic Outlook. It added that world GDP actually contracted in the second quarter due to downturns in China and Russia.

The fund cut its 2023 growth forecast to 2.9% from the April estimate of 3.6%, citing the impact of tighter monetary policy.

World growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic crushed global output in 2020 with a 3.1% contraction.

"The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one," IMF Chief Economist Pierre-Olivier Gourinchas told a news conference.

"The world's three largest economies, the United States, China and the euro area, are stalling, with important consequences for the global outlook," he added.

‘Plausible’ Russian gas embargo

The fund said its latest forecasts were "extraordinarily uncertain" and subject to downside risks from Russia's war in Ukraine pushing energy and food prices higher. This would exacerbate inflation and embed longer-term inflationary expectations that would prompt further monetary policy tightening.

Under a "plausible" alternative scenario that includes a complete cut-off of Russian gas supplies to Europe by year-end and a further 30% drop in Russian oil exports, the IMF said global growth would slow to 2.6% in 2022 and 2% in 2023, with growth virtually zero in Europe and the United States next year.

Global growth has fallen below 2% only five times since 1970, Gourinchas said - recessions in 1973, 1981 and 1982, 2009 and the 2020 COVID-19 pandemic.

The IMF said it now expects the 2022 inflation rate in advanced economies to reach 6.6%, up from 5.7% in the April forecasts, adding that it would remain elevated for longer than previously anticipated. Inflation in emerging markets and developing countries is now expected to reach 9.5% in 2022, up from 8.7% in April.

"Inflation at current levels represents a clear risk for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers," Gourinchas said.

An unprecedented synchronized global monetary policy tightening by central banks will "bite" next year, slowing growth and pressuring emerging market countries, but delaying this process "will only exacerbate the hardship," he said, adding that central banks "should stay the course until inflation is tamed."

US, China downgrades

For the United States, the IMF confirmed its July 12 forecasts of 2.3% growth in 2022 and an anemic 1.0% for 2023, which it previously cut twice since April on slowing demand.

The Fund deeply cut China's 2022 GDP growth forecast to 3.3% from 4.4% in April, citing COVID-19 outbreaks and widespread lockdowns in major cities that have curtailed production and worsened global supply chain disruptions.

The IMF also said the worsening crisis in China's property sector was dragging down sales and investment in real estate. It said additional fiscal support from Beijing could improve the growth outlook, but a sustained slowdown in China driven by larger-scale virus outbreaks and lockdowns would have strong spillovers.

The IMF cut its eurozone growth outlook for 2022 to 2.6% from 2.8% in April, reflecting inflationary spillovers from the war in Ukraine. But forecasts were cut more deeply for some countries with more exposure to the war, including Germany, which saw its 2022 growth outlook cut to 1.2% from 2.1% in April.

Italy, meanwhile saw an upgrade in its 2022 growth outlook due to improved prospects for tourism and industrial activity. But the IMF said last week that Italy could suffer a deep recession under a Russian gas embargo.

Russia's economy is expected to contract by 6.0% in 2022 due to tightening Western financial and energy sanctions - a "fairly severe recession," Gourinchas said. But that is an improvement over the April forecast of an 8.5% contraction, due to Moscow's measures to stabilize its financial sector, which is helping to support the domestic economy.

The IMF estimates that Ukraine's economy will shrink by some 45% due to the war, but the estimate comes with extreme uncertainty.



China Calls for Building up Consensus with US after ‘Candid’ Trade Talks 

Chinese Vice Premier He Lifeng leaves Lancaster House, on the second day scheduled for trade talks between the US and China, in London, Britain, June 10, 2025. (Reuters)
Chinese Vice Premier He Lifeng leaves Lancaster House, on the second day scheduled for trade talks between the US and China, in London, Britain, June 10, 2025. (Reuters)
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China Calls for Building up Consensus with US after ‘Candid’ Trade Talks 

Chinese Vice Premier He Lifeng leaves Lancaster House, on the second day scheduled for trade talks between the US and China, in London, Britain, June 10, 2025. (Reuters)
Chinese Vice Premier He Lifeng leaves Lancaster House, on the second day scheduled for trade talks between the US and China, in London, Britain, June 10, 2025. (Reuters)

China's Vice Premier He Lifeng said China and the United States should strengthen consensus and maintain communication, state news agency Xinhua reported on Wednesday, after the two countries agreed to get a delicate trade truce back on track.

US and Chinese officials, including He, concluded two days of negotiations in London on Tuesday to resolve key trade issues in the two superpowers' bruising tariff war, including on a raft of export control measures that have hobbled global supply chain.

The two sides should use their consultation mechanism to further "build up consensus, reduce misunderstandings and strengthen cooperation", He was quoted as saying by Xinhua, describing the talks as candid and in-depth.

China and the US should safeguard the hard-won outcome from their dialogue, and push for stable and long-term bilateral trade and economic ties, He said.

China's stance on trade issues with the US was clear and consistent, He added, reiterating that China was sincere in trade and economic consultations but had its principles.

Beijing and Washington have, after striking a 90-day truce in Geneva last month, suspended most of the triple-digit tariffs they had heaped on each other's goods. But bilateral ties remain strained over unresolved trade issues, such as China's rare earth export controls and US curbs on chip-related exports.

The London talks took place after a rare phone call between Chinese President Xi Jinping and US President Donald Trump on Thursday.

US Commerce Secretary Howard Lutnick, who represented the US in London, said the new agreement would remove restrictions on Chinese exports of rare earth minerals and magnets and some of the recent US export restrictions "in a balanced way", without providing further details.

The two negotiating teams would present the framework to their respective presidents for approval, Lutnick said.