In April, the International Monetary Fund (IMF) cut its global growth forecast to 3.6% for this year and next, warning that the global economic outlook could get worse from there. Now, the IMF is looking to make another cut later this month for both 2022 and 2023.
The outlook has “darkened significantly,” wrote Kristalina Georgieva, the managing director of the IMF, in a blog published July 13. She did not provide specific figures.
So why is the IMF reconsidering its growth prediction? Global events like the Russia-Ukraine war and the pandemic continue to hurt supply chains. That in turn drives up prices and boosts inflation, which is pushing poorer countries further into debt. The continued economic uncertainty is putting the world at greater risk for a recession.
The forces behind the gloomier picture
The Russia-Ukraine war has pushed prices of commodities such as wheat and energy to record highs. High food prices have contributed to growing hunger among poorer nations, while European countries have scrambled to find fuel alternatives after reducing or banning Russian oil imports.
The pandemic continues to hurt global supply chains. China’s continued zero covid policy that lock down major economic centers for weeks at a time have slowed its economy and have global implications. While Chinese factories are shuttered, global demand for goods produced there keeps rising, driving up prices that contribute to inflation.
Rising costs for basic goods are hurting people in poorer countries the most and putting those nations deeper into debt. For months, Sri Lankans have struggled to meet basic needs like fuel, food, and medicine; the country’s economy is expected to contract more than 6% amid political unrest and economic instability, while discussions with the IMF over a multi billion-dollar bailout have stalled. Some 30% of emerging market countries and 60% of low-income nations are “in or near debt distress,” according to the IMF.
A recession, however, is not a foregone conclusion. In her blog, Georgieva ramps up the pressure on countries to stop one by doing everything in their power to curb inflation and to work together.