The International Monetary Fund has just published its new growth forecasts for the world economy for 2022 and 2023. Its reference scenario, in principle the most optimistic, is already chilling. And if one of the risks weighing on the global economic outlook were to materialise, it would be recession!
The specter of recession hangs over the global economy. Many downside risks, flagged in the IMF’s April edition of the World Economic Outlook, have indeed begun to materialize. Stronger-than-expected inflation is bringing the United States and the European Union to its knees, causing global financial conditions to tighten.
In China, the slowdown was more pronounced than expected amid Covid-19 outbreaks and lockdowns. As for the war in Ukraine, it had further negative repercussions. In short, global production contracted in the second quarter of this year. Consequently, the economic outlook is hardly reassuring.
An “optimistic” scenario scary
Even the IMF’s reference scenario, in principle the most optimistic, sends shivers down the spine! Under this assumption, global growth will slow down from 6.1% last year to 3.2% in 2022 and 2.9% next year, i.e. a deterioration of 0.4 and 0.7 percentage points. percentage over April figures. The IMF explains this slowdown by a growth stalemate in the three main economies of the world, the United States, China and the euro zone, which has important consequences for the global outlook. Thus, in the United States, a decline in household purchasing power and a tightening of monetary policy will reduce growth to 2.3% this year and 1% in 2023.
In China, repeated confinements and the worsening of the real estate crisis have reduced growth to 3.3% this year, the lowest rate in more than forty years, if we exclude the pandemic. Finally, in the euro zone, growth is revised downwards, to 2.6% this year and 1.2% in 2023, due to the fallout from the war in Ukraine and the tightening of monetary policy.
Also in this first scenario, the IMF is counting on an upward revision of global inflation, partly due to the increase in food and energy prices. According to experts from the Bretton Woods institution, inflation should reach 6.6% this year in advanced countries and 9.5% in emerging or developing countries, an upward revision of 0, 9 and 0.8 percentage points, respectively. It should also stay high longer.
A pessimistic scenario who leaves speechless
The IMF stresses that the risks to the global economic outlook are, this time around, largely tilted to the downside. Unfortunately, there are plenty of them. For example, the war in Ukraine, of which no one knows when it will end, might suddenly interrupt European imports of Russian gas (See box).
In this scenario, which is a very plausible scenario, the IMF says inflation will rise, and global growth will slow further to 2.6% this year and 2% next year. Since 1970, this pace has been slower only five times. In this scenario, the United States, like the euro zone, experiences near-zero growth next year, which would have negative consequences for the rest of the world.
The risks to the global economic outlook
• The war in Ukraine might abruptly interrupt European imports of Russian gas;
• Inflation might remain stubbornly high if the labor shortage remains too great, if inflation expectations lose their anchor or if disinflation proves more costly than expected;
• A tightening of global financial conditions might trigger a wave of over-indebtedness in emerging and developing countries;
• Further Covid-19 outbreaks and lockdowns are likely to further dampen growth in China;
• Rising food and energy prices might cause widespread food insecurity and social unrest;
• Geopolitical fragmentation may hamper global cooperation and trade.
Sami Nemli with agencies / Les Inspirations ECO
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