In its latest World Economic Outlook of July 2022, the IMF stated that “global economy is facing an increasingly gloomy and uncertain outlook”, and perhaps, it is one of its biggest tests since the Second World War as global output retreated in the second quarter of this year.
In numbers, IMF report shows that growth would slow from last year’s 6.1% to 3.2% this year and 2.9% next year, downgrades of 0.4 and 0.7 percentage points from April update. The revision highlights important consequences for the global outlook and shows contraction in the world’s three largest economies; the US, China and the Euro zone area.
Major economies all over the world are tightening their financial conditions due to higher than expected inflation. In details, tighter monetary policy and drop in household purchasing power in the United States will push growth down to 2.3% by the end of this year and by 1% by the end of 2023. In China, the ongoing real estate crisis and spread of new wave of COVID-19 would drive growth down to 3.3% for this year and 4.6% next year, while in the Eurozone; economic outlook is reviewed down to only 2.6% for 2022, and 1.2% for 2023. As to the MENA region, growth is expected to fall to 4.9% and 3.4% in 2022 and 2023, respectively. However, in Saudi Arabia growth will rise to 7.6% in 2022, but fall to 3.7% in 2023.
Moreover, inflation is projected to remain elevated due to cost pressures from disrupted supply chains, rising food and energy prices as well as the historically tight labor markets. As such, IMF revised up the inflation to 6.6% by the end of this year in advanced economies and 9.5% in emerging market and developing economies.
The outlook of the worldwide economy has remarkably darkened since last April report as current high levels of inflation has proven to be extremely costly for economic growth. Recession is becoming a major concern for global economies; while climate transition, food security and debt are key challenges for policymakers to mitigate the risk of potential geo-economic fragmentation.
July World Economic Outlook Growth Projections (real GDP, annual percent change):
Source: IMF, World Economic Outlook Update, July 2022