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Wednesday, 27 July 2022

IMF is “gloomy and uncertain” on global economy

The IMF has revised downwards its global growth outlook for this year and next, warning that gathering headwinds are pushing the world closer to recession. In its updated World Economic Outlook (pdf) released yesterday, the Fund cut its 2022 forecast by 0.4 percentage points and now sees the global growth weakening to 3.2% from 6.1% last year, as the spillover effects from the war in Ukraine, rising interest rates and continued disruptions caused by the pandemic heap pressure on economic activity around the world.

It’ll get worse next year: The IMF expects global growth to weaken further in 2023 as tightening financial conditions start to bite. It is now forecasting 2.9% growth against the 3.6% it had predicted in April.

The report is titled “Gloomy and More Uncertain” for a reason: “The outlook has darkened significantly since April,” IMF Chief Economist Pierre-Olivier Gourinchas wrote yesterday. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”

There are “overwhelming” downside risks to the outlook: Europe being entirely cut off from Russian gas supplies, a 30% drop in Russian oil exports, persistently high inflation, and tighter monetary policy could come together to push the eurozone to near-zero growth and escalate debt crises in emerging markets. Under this “plausible” alternative scenario, the IMF expects growth to fall even further to 2.6% this year and 2.0% in 2023.

No end to inflation in sight: The Fund has revised upwards its forecast for inflation to 6.6% (up 0.9 percentage points from April figures) this year in advanced economies, and 9.5% (up 0.8 percentage points) in EMs and developing economies on the back of rising food and energy prices.

IMF wants policymakers to prioritize inflation above all else: “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. Tighter monetary conditions will hit the global economy but delaying it “will only exacerbate the hardships,” he said.


The Egyptian economy isn’t looking too bad: The IMF left Egypt’s FY 2022-2023 growth forecast unchanged at 5.9% but cut our 2023 outlook to 4.8%. The IMF has twice upgraded its outlook for the Egyptian economy this year, despite surging commodity prices and rising interest rates knocking business confidence and squeezing public finances.

“Egypt has been hit by the impacts of the war in Ukraine,” particularly due to our reliance on Russia and Ukraine for about 80% of its grain imports and for a substantial portion of our tourism revenues, Jihad Azour, the multilateral lender’s head of Middle East and Central Asia, told CNBC Arabia (watch, runtime: 14:12). This has reflected on food prices, tourism revenues, and portfolio flows, he added.

Countries in the MENA, Central Asia and sub-Saharan Africa regions bucked the trend: The outlook for countries in these regions remains “on average unchanged or positive,” the IMF said, as the effects of rising fossil fuel and metal prices for major commodity exporters in the regions buoy the overall forecast.

Emerging markets will still see growth next year, but risks remain: The Fund now expects growth in EM to come in at 3.6% this year, before rising slightly to 3.9% next year — down 0.2 and 0.5 percentage points respectively from April’s forecast. The negative revisions came mainly on the back of the slowdown in growth in major emerging markets China and India over the past quarter.

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