report is expected to account for about one-third of the world's total economy.
article｜Finance reporter Jiang Wei
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In the latest released World Economic Outlook Report , International Monetary Fund (IMF) maintained its expectation of a 3.2% global economic growth rate in 2022, but lowered its global growth forecast in 2023 from 2.9% the previous forecast to 2.7%, and said that the probability of a 25% growth rate in the global economy next year is lowered below 2%. Apart from the severe stages of the global financial crisis and the COVID-19 pandemic, this will be the weakest growth performance of the global economy since 2001.
This report is expected to shrink this year or next year. The three major economies , the United States, the European Union and China will all continue to be in a state of stagnation of growth. Even in countries with positive economic growth, it looks like an economic recession due to shrinking real income and rising prices.
Global economic activity has generally slowed down and is more severe than expected, with inflation at its highest level in decades. Both developed and developing countries are facing a cost-of-living crisis, but 2022 is not the worst year. "The worst is not yet here. For many people, 2023 will be a year of recession in terms of feelings." Pierre Olivier Gulansha, economic consultant and director of the research department of IMF, said at a press conference held in Washington on October 11.
Gulansha pointed out that the global economy still faces severe challenges, including the Russian-Ukrainian conflict, the cost of living crisis caused by the pressure of inflation and the slowdown in China's economic growth.
In the world economic outlook report released in October 2021, the IMF expects the global economy to achieve 4.9% growth in 2022. But since this year, the IMF has lowered its growth expectations for 2022 three times in January, April and July respectively. In the report released this time, the IMF maintained its July expectations, believing that the global economy can achieve 3.2% growth this year. But multiple shocks have changed the picture of the world economy. The global economic growth prospects have become bleak due to the impact of the new crown epidemic, the Russian-Ukrainian conflict and the climate disaster.
"We are experiencing a fundamental transformation of the global economy, from a relatively predictable world to a more fragile world, with rising uncertainty and increasing economic volatility, frequent geopolitical conflicts, and natural disasters are becoming more frequent and more severe." A week before the World Economic Outlook Report, IMF President Cristalina Georgieva said in a speech at Georgetown University in Washington on October 6.
She pointed out that the old order characterized by a rules-based framework for international economic cooperation, low interest rates and low inflation is giving way to a new normal that any country can easily and more frequently disconnect.
The world's major economies, including China, the United States and Europe, are all experiencing a slowdown in growth. In the latest growth forecast for the world economic outlook, the U.S. economic growth rate will drop from 5.7% in 2021 to 1.6% in 2022 and 1% in 2023, of which the growth rate in 2022 was 0.7 percentage points lower than July's expectations. China's economic growth expectations in 2022 and 2023 were lowered to 3.2% and 4.4% respectively. The economic growth rate of euro zone this year has increased to 3.1% from the previous forecast, but the growth rate will be lowered to 0.5% next year. Germany and Italy will experience negative growth of 0.3 and 0.2 in 2023, respectively. These two countries are the members of the euro zone that rely the most on Russian energy supply. The report believes that three main factors will affect the global economic outlook: the monetary policy stance adopted to curb inflation, the Ukrainian conflict, and the ongoing impact of the lockdown and supply chain disruption due to the COVID-19 pandemic.
Inflation has soared at a rate that exceeded expectations since 2021. In 2022, inflation in developed economies has risen to its highest point since 1982.Although inflation is a widespread phenomenon, the impact on low-income groups in developing economies is the most severe. In these countries, half of household consumption spending is spent on food purchases.
The U.S. inflation hit a 40-year high, while the euro zone inflation rate reached 10% in September. Inflation rates for emerging markets and developing economies will reach 11% in the third quarter of this year, the highest since 1999.
Inflation pressure triggers countries to adopt monetary tightening, but there are risks in terms of policy tightening too small or too large. Gulansha said that insufficient tightening will lead to a longer inflation, weakening the reputation of the central bank and causing inflation expectations to dean. Excessive tightening of monetary policy may put the global economy in an unnecessary and serious recession.
Although many countries are still facing pressure from rising prices, the IMF expects global inflation to peak in 2022. The World Economic Outlook Report expects global inflation to rise from 4.7% in 2021 to 8.8% in 2022, but will fall back to 6.5% in 2023 and further drop to 4.1% in 2024.
The Russian-Ukrainian conflict has caused a serious energy crisis in Europe . Since 2021, the price of natural gas in Europe has more than quadrupled, causing the cost of living to soar and economic activity to hinder. Quransha pointed out that the energy crisis in Europe is not a temporary impact. Europe will still face energy shortages in the next winter and beyond. The fiscal authorities of European countries need to plan and coordinate accordingly. "The winter of 2022 will be a challenge for Europe, but the winter of 2023 may be worse," said Gulansha.
To deal with the cost of living, energy and food crises, formulating appropriate fiscal policies has become a challenge for many countries. The report believes that the focus should be on protecting the most vulnerable groups through temporary targeted transfers. If some overall financial support must be provided, especially in countries most affected by the energy crisis, policies must be incorporated into a credible medium-term fiscal framework.
