The IMF has reduced its global growth forecast, citing a range of risks. These risks include the sudden cutoff of Russian gas supplies to Europe and the rise of inflation. These risks could lead to global growth slowing to 2.6% this year and two percent next year. It is the fifth time since 1970 that global growth has fallen below two percent. In addition, these risks could lead to near-zero growth in the eurozone and the United States, which would have negative effects across the rest of the world.
The IMF will meet with the World Bank in Washington next week to discuss the situation in the world economy. It also said that a third of the global economy will contract this year and will experience two consecutive quarters of contraction in 2026. Even if the world economy does expand in the second quarter, it will feel like a recession. As a result, the IMF expects global output to shrink by $4 trillion from now through 2026.
The world economy is currently facing many challenges, including the coronavirus pandemic and the conflict in Ukraine. The IMF cut its global growth forecast for 2022, and warned that downside risks such as higher inflation and a slowdown in China could push the world economy into recession. Despite the risks, the world economy will still grow by 3.2% by 2022, although its growth rate will slow further than it did last year.
The war in Ukraine has triggered a costly humanitarian crisis. The economic damage caused by the conflict will contribute to the slowdown in global growth in 2022. The conflict is also expected to lead to increased prices for food and fuel, affecting many countries. The consequences of these effects will trickle down into the global economy, especially for the most vulnerable.
Another risk that the IMF warns about is global stagflation. This could have disastrous effects on developing nations. Per capita income in many of these countries remains five percent below pre-pandemic levels. If this continues, the risk of a global recession increases, which could push interest rates higher and push some emerging markets into a financial crisis.
China’s economy is also suffering. The IMF has lowered its GDP growth forecast for 2022, and said that it will be 3.3 percent this year, the lowest full-year growth figure in four decades. Further, the country’s real estate crisis has worsened. China’s economy may not be able to recover from this stagflation, which could hurt investors. The S&P 500 stock index has fallen by thirteen percent this year, and a sustained slowdown would lead to a drop of twenty percent or more.
The IMF also warns that inflation rates in developing nations could rise to more than 9%. This could cause supply chain disruptions. With these issues, the IMF expects that central banks will increase borrowing costs in an effort to tamp down rising prices.