·
Global output was expected to slow this year to 3.6 percent,
from 6.1 percent in 2021
The International Monetary Fund’s new World Economic Outlook expects
growth to slow to 3.6 percent this year. The group is one of many to slash their
forecasts recently
[ABS News Service/20.04.2022]
The world economy
has entered a period of intense uncertainty as a capricious pandemic and the fallout
from Russia’s war in Ukraine combine to fuel rapid inflation and weigh on an already
fragile global recovery.
These colliding
challenges are confronting policymakers and central bankers in the United States
and Europe as they seek to bring down inflation without slowing growth so much that
their economies tip into recession.
In the last week,
international organizations and think tanks have begun slashing their forecasts
for growth and trade as they assess the war’s disruptions to global energy, food
and commodity supplies, as well as China’s sweeping lockdowns to contain a renewed
coronavirus outbreak.
The pall over the
world economy was underscored on Tuesday by the International Monetary Fund, which
said in its World Economic Outlook that global output was expected to slow this
year to 3.6 percent, from 6.1 percent in 2021. That is a downgrade from a January forecast of 4.4 percent growth this year.
“Global economic
prospects have been severely set back, largely because of Russia’s invasion of Ukraine,”
Pierre-Olivier Gourinchas, the I.M.F.’s chief economist,
said at a news briefing on Tuesday. “This crisis unfolds as the global economy has
not yet fully recovered from the pandemic.”
The impact of Russia’s
war on the global economy will be a central topic for policymakers convening in
Washington this week for the spring meetings of the International Monetary Fund
and the World Bank.
As the meetings
got underway, policymakers grappled with how to maintain pressure on Russia while
keeping the economic recovery on track and protecting the world’s poor from rising
prices. While some countries that export commodities will benefit from a period
of higher fuel and food prices, for most economies the disruptions weigh heavily.
“The war has made
an already dire situation worse,” Treasury Secretary Janet L. Yellen said in a speech
about rising food insecurity on Tuesday. “Price and supply shocks are already materializing,
adding to global inflationary pressures, creating risks to external balances, and
undermining the recovery from the pandemic.”
On Wednesday, Ms.
Yellen plans to attend an opening session that will include Ukraine’s finance minister
as the United States looks to stand with allies in opposition to Russia’s invasion,
a Treasury official said. However, Ms. Yellen will not attend some Group of 20 sessions,
such as those on international financial architecture and sustainable finance, if
Russians are participating.
Against that backdrop, the I.M.F.’s new data revealed a daunting
set of economic headwinds. Mr. Gourinchas said the war
was slowing growth and spurring inflation, which he described as a “clear and present
danger” for many countries. He added that disruptions to Russian supplies of oil,
gas and metals, along with Ukrainian exports of wheat and corn, will ripple through
commodities markets and across the global economy “like seismic waves.”
He acknowledged that the trajectory of the global economy would depend
on how the war proceeded and the ultimate breadth of the sanctions that the United
States and its allies in Europe and Asia imposed on Russia.
“Uncertainty around these projections is considerable, well beyond
the usual range,” Mr. Gourinchas said. “Growth could slow
down further while inflation could exceed our projections if, for instance, sanctions
extend to Russian energy exports.”
Ukraine and Russia are facing the most dire
economic consequences from the war. The I.M.F. expects the Ukrainian economy to
contract by 35 percent this year, while Russia’s economy is projected to shrink
8.5 percent. Mr. Gourinchas noted that the Russian authorities
had so far managed to prevent a collapse of their financial system and avoided bank
failures but said further sanctions targeting Russia’s energy industry could have
a significant impact on its economy.
The sweeping sanctions that America and its allies have already imposed
on Russia are the main factor contributing to the downward revision of the I.M.F.’s
global growth outlook, Mr. Gourinchas said. He added that
a tightening of restrictions on Russian energy exports would be an “adverse scenario”
that would further slow output around the world.
Rising
prices around the world show no signs of abating, the I.M.F. said, even if supply
chain problems ease. It expects inflation to remain elevated throughout the year,
projecting it at 5.7 percent in advanced economies and 8.7 percent in emerging markets.
Inflation hit 8.5 percent in the United States last month, the fastest 12-month
pace since 1981.
Other international organizations and research groups have also
pared back their global growth forecasts. Economists at the Peterson Institute for
International Economics, a Washington think tank, expect global growth to decline
from a rapid 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023.
The World Bank also expressed alarm this
week about the state of the global economy, warning
that the lingering pandemic, Covid-19 lockdowns in China and higher inflation could amplify income inequality and poverty
rates. It lowered its 2022 growth forecast to 3.2 percent from 4.1 percent.
“I’m deeply concerned
about developing countries,” David Malpass, the World
Bank president, said on Monday. “They’re facing sudden price increases for energy,
fertilizer and food, and the likelihood of interest rate increases. Each one hits
them hard.”
According to the
Bank for International Settlements, more than half of emerging economies have inflation rates above 7 percent. And
60 percent of “advanced economies,” including the United States and the euro area,
have inflation over 5 percent, the largest share since the 1980s, the bank said.
In Britain, inflation
climbed to 7 percent in March, the highest
level in 30 years.
An April 12 survey
of global investors by BofA Securities found that more
than two-thirds were pessimistic about global growth prospects in the months ahead.
Several central
banks, including the Federal Reserve, are trying to tame rapid inflation by raising
interest rates and removing other pandemic-era economic support. Whether policymakers
can succeed in taking the heat out of the economy without triggering a recession
remains to be seen.
Karen Dynan, a
senior fellow at the Peterson Institute and a former economist at the Federal Reserve
Board, said that underlying demand in the United States remained strong, because
of the savings accumulated by consumers during the pandemic and their pent-up desire
for spending.
“Demand will
be and will need to be restrained by the removal of monetary accommodation,”
she said. “And this has become very clear in recent months.”
In addition to
the war, the pandemic and rising interest rates, China is facing a downturn in
its property sector, and the Brazilian economy could be damaged by political
turmoil related to coming elections, she said.
New data show
that Chinese economic growth and retail sales are
flagging, as the government imposes sweeping lockdowns to stamp out the
coronavirus. By April 11, 87 of China’s 100 largest cities had imposed some
form of restriction on movement, according to Gavekal
Dragonomics, an economic research firm.
The
restrictions are again disrupting global supply chains for electronics, car
parts and other goods, and dampening Chinese imports of oil, food and consumer
goods. China is the world’s largest oil importer, and cooling demand there
caused the International Energy Agency last week to trim its forecasts for oil
demand growth this year to 1.9 million barrels a day, from an increase of 5.6
million barrels a day last year.
The Russian
invasion of Ukraine, and the sanctions imposed to punish Moscow, also threaten
to tip European economies into recession. Last week, forecasters at Germany’s
top economic institutes projected that a full European ban on Russian energy imports would cause
German output to contract 2.2 percent next year and push inflation up to 7.3
percent, a record for postwar Germany.
Global trade
growth is also expected to slow this year. The World Trade
Organization expects world merchandise trade
volumes to expand 3 percent this year, down from a previous forecast of 4.7
percent. But depending on how the pandemic and the war unfold, trade growth
could be as low as 0.5 percent or as high as 5.5 percent, Ngozi
Okonjo-Iweala, the organization’s director general,
said in a news conference last Tuesday.
The group
forecast that global trade growth would rebound to 3.4 percent next year,
though those estimates are also subject to change.
Dr. Okonjo-Iweala said the war prevented the organization’s
economists from gathering key data on economic output, forcing them to rely on
in-house simulations of how sanctions on Russian, the devastation of Ukrainian
infrastructure, and the broader erosion of business and consumer confidence
would affect global growth, she said.
“The economic
reverberations of this conflict will extend far beyond Ukraine’s borders,” she
said. “It is now clear that the double whammy of the pandemic and the war has
disrupted supply chains, increased inflationary pressures, and lowered
expectations for output and trade growth.”