In a stunning April World Economic Outlook (WEO) update, the IMF said problems in the US, China and the eurozone had resulted in global output falling in the second quarter of this year – the first contraction since the start of of the Covid-19 pandemic. The Washington-based IMF said it now expects the global economy to grow by 3.2% in 2022 – down 0.4 points from April. The slowdown is set to continue next year, when growth is now forecast at 2.9% – 0.7 points lower than forecast three months ago. The UK is forecast to grow by 3.2% in 2022 and just 0.5% in 2023 – cuts of 0.5 and 0.7 points. The IMF expects the UK to slow significantly in the second half of this year and be the weakest of the G7 economies in 2023. “The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, faces an increasingly bleak and uncertain outlook,” said IMF economic adviser Pierre-Olivier Gourinchas. “Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than expected amid Covid-19 outbreaks and quarantines, and there have been further negative effects from the war in Ukraine.” The IMF said it forecast global inflation at 8.3% through the fourth quarter of 2022, up from its April estimate of 6.9%. It identified the UK – where inflation is now on course 2.7 points higher at 10.5% – and the eurozone (up 2.9 points to 7.3%) as places where cost of living pressures had particularly intensified. An analysis of the WEO’s revised forecasts showed growth downgrading in 2022 by 0.8 points in the US, 0.9 points in Germany and 1.1 points for China. In 2023, all the world’s major economies except Nigeria and Saudi Arabia – both oil exporters – are now expected to grow more slowly. Only Japan and Canada among the group of major industrialized countries are forecast to grow more than 1% next year, with the IMF forecasting 1% expansion in the US and France, 0.8% in Germany and 0.7% in Italy. Gurrinhas said there are several downside risks to the global economy that could lead to even weaker performance. These included: Sudden interruption of European gas flows from Russia as a result of the war in Ukraine. Persistently high inflation. A debt crisis caused by tighter global financial conditions. Further cases of Covid-19 and lockdown in China. Social unrest caused by rising food and energy prices. Trade wars and geopolitical fragmentation. “In a plausible alternative scenario where some of these risks materialize, including a complete cutoff of Russian gas flows to Europe, inflation would rise and global growth would slow further to around 2.6% this year and 2% next year – a rate that growth has fallen below just five times since 1970,” Gurrinhas said. “In this scenario, both the United States and the eurozone experience almost zero growth next year, with negative knock-on effects for the rest of the world.” Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk The IMF’s economic adviser said fighting inflation should be the top priority for policymakers and backed the central bank’s recent decisions to raise interest rates. “Tighter monetary policy will inevitably have real economic costs, but delay will only make the difficulties worse. Central banks that have started to tighten should stay the course until inflation is tamed.” Governments could soften the impact of the slowdown on the most vulnerable through targeted support, Gurrinhas said, but aid would have to be paid for by higher taxes or lower public spending to ensure central banks’ jobs don’t get harder.
