World GDP does not go up – Newspaper Kommersant No. 189 (7390) of 10/12/2022

Global economic growth could slow to 2.7% next year, the lowest since 2001 (excluding the financial crisis of 2008-2009 and the acute phase of the pandemic), according to a new forecast from the International Monetary Fund (IMF). The fund does not rule out a decrease in growth rates and up to 2% due to the contraction of the economies of the United States, the euro area countries and China. Against the backdrop of accelerating inflation, the role of central banks is increasing, which will have to avoid both insufficient and excessive tightening of their policies, the IMF notes.

Growth of the global economy this year will be 3.2% against 6% last year, next it will slow down to 2.7% (0.2 percentage points (pp) less than it was in the June update of the fund’s forecast). 2.7% will be the weakest growth rate of global GDP, not counting the period of the global financial crisis and the acute phase of the pandemic, the IMF.

The fund points to high risks of an additional slowdown in growth – with a 25% chance it will be less than 2%, and a third of the world economy will face a recession this or next year.

It is noted that in the second quarter of this year, global GDP has already decreased by 0.1% compared to the previous quarter against the backdrop of shrinking economies in China, Russia and the United States.

The forecast for developed countries for this and next year is reduced by 0.1 percentage points and 0.3 percentage points to 2.4% and 1.1%, respectively. Including in the US this year is expected to grow by 1.6%, next – by 1%. In the euro area, positive growth this year is turning into a recession as energy prices rise (gas prices have already more than quadrupled year-over-year, while deliveries from Russia are down to 20% of 2021 levels). In general, for the currency bloc this year, GDP is expected to grow by 3.1%, next year – by 0.5% (plus 0.5 percentage points and minus 0.7 percentage points compared to the July forecast). Including in Germany, GDP growth is expected to slow down to 1.5% this year and decline by 0.3% in 2023. in Italy, GDP growth of 3.2% will be replaced by a contraction of 0.2%.

In developing countries, on average, growth rates will be the same this year and next – 3.7%. The IMF has worsened its forecast for China – now GDP growth is expected to be only 3.2% this year, and 4.4% next year. The cooling of the real estate market, as well as selective covid restrictions, contribute to the slowdown in the Chinese economy. On the contrary, the forecast for Russia has been improved to minus 3.4% this year and minus 2.3% next year (plus 2.6 percentage points and 1.2 percentage points to the previous forecast).

The fund points to the consequences of an increase in the cost of living in many countries against the backdrop of rising inflation – the global forecast for it for this year has been additionally increased by 0.5 percentage points, to 8.8% (against 4.7% in 2021).

Global inflation, according to the forecast of the fund, will pass the peak at the end of this year. Further, however, the indicator will still remain at an elevated level: in 2023 – up to 6.5%, in 2024 – up to 4.1%.

Inflation in developed countries this year reached its highest level since 1982 (by the end of the year it could reach 7.2% before slowing to 4.4% in 2023), which provoked a tightening of monetary policy (real rates, however, are still at a level lower than they were before the pandemic). This process in many countries was accompanied by a contraction in fiscal support, increased during the fight against the pandemic. For developing countries, in turn, an increase in rates by developed countries threatens to increase the cost of servicing the debt burden and additional pressure on the balance of payments.

The IMF points to the risks of both insufficient tightening of the policy of central banks, and excessive. The first will lead to a “break-off” of inflation expectations and undermine confidence in central banks, which will eventually require more stringent measures in the future to reduce inflation. Excessive tightening could lead to a more pronounced recession in the economy, which, in turn, will increase the risks of the financial system and ultimately strengthen the voice of those who advocate policy easing, the IMF believes.

Tatyana Edovina