Faced with a “darkening” economic outlook, the International Monetary Fund (IMF) is set to further downgrade global growth for both 2022 and 2023 in its World Economic Outlook Update to be released later this month. In a report titled ‘Facing a Darkening Economic Outlook: How the G20 Can Respond’, IMF said that as the G20 ministers and central bank governors gather in Bali this week, they would face a global economic outlook that has darkened significantly.
When the G20 last met in April, the IMF had just cut its global growth forecast to 3.6 percent for this year and the next one, and it warned that it could get worse given the potential risks. Since then, several of those risks have materialized and the multiple crises facing the world have intensified, it said. “The human tragedy of the war in Ukraine has worsened. So, too, has its economic impact, especially through commodity price shocks that are slowing growth and exacerbating a cost-of-living crisis that affects hundreds of millions of people–and especially poor people who cannot afford to feed their families. And it’s only getting worse,” the report said.
Inflation currently is higher than expected and has broadened beyond just food and energy prices. To counter the rising inflation, major central banks had to announce further monetary policy tightening, essentially through interest rate hikes. Though monetary policy tightening was necessary, it may pull down the economic recovery.
“It is going to be a tough 2022–and possibly an even tougher 2023, with increased risk of recession,” the report said. The IMF suggested three major priorities in its report. Firstly, countries must do everything in their power to bring down high inflation.
“Why? Because persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable. Inflation has already reached multi-decade highs in many countries, with both headline and core inflation continuing to rise,” it explained. Secondly, fiscal policies must help and not hinder the central bank’s efforts to bring down inflation.
Finally, it said a fresh impetus for global cooperation is needed, led by the G20. “As the G20 meets to navigate the current sea of troubles, we can all take inspiration from a Balinese phrase that captures the spirit that is needed more than ever– menyama braya, “everyone is a brother or sister,” the report concluded with this statement.
