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The International Monetary Fund (IMF) lowered their growth forecast for the global economy in 2022 and 2023 because of inflation but maintained their prediction for the Asean-5 region for 2022 in their latest World Economic Outlook report.
“The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook,” Pierre-Olivier Gourinchas, a director of research at the IMF wrote in a blog.
“Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions,” he said.
The IMF downgraded its forecast for the global economy in 2022 from 3.6% in its April prediction down to the current 3.2%, compared to 6.1% in 2021. Its projection for 2023 was also downgraded from 3.6% down to 2.9%.
The report said the global output contracted in the second quarter of this year because of the economic downturn in China and Russia while US consumer spending was lower than expected.
It said the global economy, which was already weakened by the Covid-19 pandemic, has been further hit by higher-than-expected inflation worldwide, especially in the US and the Eurozone.
Global inflation in 2022 has been revised up from 5.7% and 8.7% for advanced and emerging economies to 6.6% and 9.5% respectively, mainly because of rising food and energy prices.
The IMF revised down the US, the Eurozone and China growth forecasts for 2022 from 3.7%, 2.8% and 4.4% down to 2.3%, 2.6% and 3.3% respectively.
Lockdowns and a deepening real estate crisis in China have sent the country’s growth projection down to its slowest pace in more than four decades, excluding the pandemic.
However, the IMF has maintained its economic projection for the Asean-5 region (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) at 5.3% in 2022 but downgrade the projection for 2023 from 5.9% down to 5.1%.
This means that the region is still expected to be the biggest growth region in the world in 2022 when compared to the projections in other regions.
Going forward, the downside risks to the current growth projection for the global economy include:
- The war in Ukraine could lead to a sudden stop of gas flows from Russia to the Eurozone
- Inflation could remain stubbornly high if labor markets remain overly tight
- Tighter global financial conditions could induce a surge in debt distress
- Renewed Covid-19 outbreaks and lockdowns might further suppress China’s growth
- Rising food and energy prices could cause widespread food insecurity and social unrest
- Geopolitical fragmentation might impede global trade and cooperation.