By 2022, things were getting worse as risks started to come true. China and Russia both had slowdowns in the second quarter of this year, and US consumer spending fell short of what was expected. Several shocks have hit a world economy that was already hurt by the pandemic. This includes higher-than-expected inflation around the world, especially in the US and major European economies, which has tightened financial conditions; a worse-than-expected slowdown in China because of COVID-19 outbreaks and lockdowns; and more bad effects from the war in Ukraine.
Growth is expected to slow from 6.1 percent last year to 3.2 percent in 2022, which is 0.4 percentage point less than what was predicted in the World Economic Outlook for April 2022. In the U.S., a downward revision of 1.4 percentage points was caused by slower growth earlier this year, less money people could spend, and tighter monetary policy. China’s growth has been cut by 1.1 percentage points because of more lockdowns and a worsening real estate crisis. This has a big effect on the rest of the world.
🆕 The IMF projects the global economy to slow further to 3.2% in 2022 and 2.9% in 2023. The risk of unusually low growth is high. Read our analysis in the World Economic Outlook update. https://t.co/ldMsaieJUU #WEO pic.twitter.com/tbjQASegwq
— IMF (@IMFNews) July 26, 2022
In Europe, the war in Ukraine and tighter monetary policy have led to a lot of downgrades. Due to rising food and energy prices and persistent supply-demand imbalances, global inflation has been revised up. This year, it is expected to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies, which is an increase of 0.9 and 0.8 percentage points, respectively. In 2023, disinflationary monetary policy is expected to have an effect, and the world economy is only expected to grow by 2.9%.
Growth is expected to slow from 6.1 percent last year to 3.2 percent in 2022, which is 0.4 percentage points less than what was predicted in the April 2022 World Economic Outlook. In the United States, a downward revision of 1.4 percentage points was caused by lower growth earlier this year, less buying power for households, and tighter monetary policy. China’s growth has been revised down by 1.1 percentage points because of more lockdowns and a worsening real estate crisis. This has a big effect on the rest of the world. And in Europe, the war in Ukraine and tighter monetary policy have led to big downgrades. Due to rising food and energy prices and persistent supply-demand imbalances, global inflation is expected to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies this year. This is an increase of 0.9 percentage point in each case. Inflation-fighting monetary policy is expected to have an effect in 2023, when the world economy will only grow by 2.9%.
Most of the risks to the outlook are on the negative side. The war in Ukraine could cause Europe to stop getting gas from Russia all of a sudden. Inflation could be harder to bring down than expected if labour markets are tighter than expected or if inflation expectations shift.
New COVID-19 outbreaks and lockdowns, as well as a worsening of the property sector crisis, could also slow down Chinese growth. If the risks come true, inflation goes up even more, and global growth drops to about 2.6% and 2.0% in 2022 and 2023, respectively, growth would be in the bottom 10% of all possible outcomes since 1970.
As prices continue to rise around the world, it should be the top priority of policymakers to bring inflation under control. There will be real economic costs to a tighter monetary policy, but waiting will only make them worse. Targeted fiscal support can help protect the most vulnerable people from the effects of the pandemic. However, because the pandemic is putting a strain on government budgets and because macroeconomic policy as a whole needs to be anti-inflationary, these policies will need to be offset by higher taxes or less government spending. Tighter monetary conditions will also affect the stability of the financial system.
This means that macro-prudential tools need to be used carefully and that debt resolution frameworks need to be changed even more. Policies that try to fix certain effects on energy and food prices should help those who are hurt the most without changing prices. And as the pandemic goes on, more people need to get vaccinated to protect against new strains. Lastly, reducing climate change still needs urgent multilateral action to limit emissions and increase investments to speed up the transition to a greener economy.
Mahnur is MS(development Studies)Student at NUST University, completed BS Hons in Eng Literature. Content Writer, Policy analyst, Climate Change specialist, Teacher, HR Recruiter.
