The International Monetary Fund (IMF) in its recent World Economic Outlook (WEO), downgraded the global economic forecast from its prior projections on the back of “multiple challenges” expected to be faced by global economies as they battle rising inflation and distorted growth this year.
The IMF’s forecast for global economic growth in gross domestic product declined from 5.9 percent in 2021 to 4.4 percent this year, and to be weakened further in 2023 to 3.8 percent.
The updated economic forecast from the fund further indicated a rather pessimistic recovery for the World’s two largest economies (China and US) as it significantly downgraded their 2022 forecast on the back maladapted recovery scope of the both economies from the pandemic.
The fund knocked 0.5 percentage points off its growth forecast for 2022 with only a modest bounce back of 0.2 percentage points for 2023.
For China however, the fund downgraded their 2022 outlook from 5.6 percent to 4.8 percent on the back of the restrictions needed to continue with its zero-covid policy and the subsequent retrenchment in the property sector.
The IMF’s outlook for UK growth was also forecasted to moderate after a strong 2022, with the economy expanding by 0.5 percent in 2023.
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The Eurozone growth outlook was maintained albeit a weaker recovery forecast, reflecting disruptions from the omicron variant, followed however, by faster growth in 2023.
The IMF’s first deputy managing director, Gita Gopinath, stated that the world economy was grappling with supply disruptions, higher inflation, record debt and uncertainty.
“The continuing global recovery faces multiple challenges as the pandemic enters its third year.
“Policymakers must vigilantly monitor a broad swath of incoming economic data, prepare for contingencies and be ready to communicate and execute policy changes at short notice,” she said.
“The last two years reaffirm that this crisis and the ongoing recovery is like no other,” Gopinath added.
For the rest of the world, inflation is forecasted to be higher this year, requiring central banks to tighten their monetary policies which would subsequently put pressure on countries to ensure their levels of borrowing decline as cost of credit rises.
The IMF indicated that this will put a lot of pressure on emerging and developing economies which would contribute to the concerns raised by the World Bank earlier in the year.
“Those with large amounts of foreign-denominated debt (like Nigeria) will be most at risk,” the Fund added.
“The most important economic policy initiative would be ‘to break the hold of the pandemic’, requiring a larger and more equitable supply of Covid-19 vaccines, tests and therapeutic drugs,” Gopinath said.
