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Tag: IMF

  • IMF predicts further slowdown for the world economies

    The International Monetary Fund in its latest World Economic Outlook report, published on July 26, 2022, has lowered its estimate of Economic growth for the world economies. This is a downward revision from their April 2022 projections of GDP growth rate for both 2022 and 2023. Below is the chart I took from the IMF website showing their growth projections by region.

    I have tried to summarize the main points of the report for you. If you are interested in reading the full report, please click here. https://www.imf.org/en/Publications/WEO/Issues/2022/07/26/world-economic-outlook-update-july-2022

    Lower GDP growth but higher inflation globally in 2022-23

    The GDP of the World is now expected to grow at 3.2% this year and 2.9% next year, compared to what they had predicted in April to be 3.6% in both 2022 and 2023.  While they predicted lower GDP growth across the globe, they raised their inflation estimates. The report predicts a 6.6% inflation in advanced economies and 9.5% in emerging and developing economies.

    What are the main factors behind this?

    The report cited various reasons for its downgrade revision. On top of the pandemic after effects, higher-than-expected inflation has been a major cause of worry worldwide, especially in the US and major European countries. This has caused the central banks of these countries to raise interest rates, making financial conditions tighter.

    Additionally, China’s economic slowdown has been worse-than-expected due to its zero covid policy. This has caused longer lockdowns, affecting their exports to the major US and European economies, and causing supply chain issues. This has also led to a supply-induced inflation.

    The report fears that given the current scenario, the Russian – Ukraine war could continue for long and sanctions associated with it could go up further. This will, unfortunately, cause more problems in energy and food markets’ supply.

    They also ran an alternative scenario of a possibility of a full shutdown of Russian gas flows to Europe by the end of 2022. If that happens, GDP global growth might fall further to 2% next year. The report also stated that since 1970, global growth has only been lower five times, so this does look very gloomy.

    What should the countries do to overcome this?


    The report suggests that controlling elevated inflation should remain the priority of policymakers around the world. This requires tightening monetary policy, and many central banks have started to do that already, both in advanced economies and emerging markets.

    They also noted the role of Fiscal policy is important here to protect the vulnerable population. But it is important that the fiscal policy (like in the form of subsidy or stimulus payments) should only target the weaker population and should not interfere with the overall disinflationary motive of monetary policy. Because a lot of inflation in the advanced economies was caused by this issue, where too much money was chasing too few goods. In other words, people got the money to spend, but not that many goods and services were getting made, causing excess demand and inflation.

    The report concluded that policymakers must continue to work on increasing vaccination rates to protect against future outbreaks. Lastly, countries must collaborate to address climate change and speed up the green transition to avoid their dependence on oil.

    Please let me know in the comment section your feedback on what topics you would like me to write about.

  • Global economy will slow down in 2022 and 2023. What policy measures the governments should take to get back to growth trajectory?

    IMF projects lower global GDP growth of 3.6% for the next two years

    IMF’s World Economic Outlook report published on April 19, 2022 has predicted a drop in the GDP growth of the world economies in the years 2022 and 2023 to 3.6%. This downward revision is from their previous estimate of 6.1%, largely because of the war in Ukraine. IMF publishes this report twice every year.

    Below is the chart from IMF showing these growth projections by region. These projections are for real GDP growth and not nominal GDP growth. As changes in real GDP are the most popular indicator of a country’s overall economic condition. If you want to know more about the US GDP and its components, please click here.

    Countries, like the United States, the EU, Japan, the UK, Canada, and other advanced countries are projected to grow on an average of 3.3% in 2022 and only 2.4% in 2023.

    The emerging market and developing countries such as India are projected to grow at 8.2% in 2022 and 6.9% in 2023. Whereas because of the lockdown in Shanghai, China, the projected growth is slightly lower at 4.4% in 2022 and it is expected to be 5.1% in 2023, as the lockdowns are eased.

    As expected, there is a severe double-digit drop (-35%) in GDP projection for Ukraine in 2022. They also project a contraction for Russia due to sanctions and European countries’ decisions to reduce energy imports. The war has also severely impacted emerging and developing Europe, which shares proximity to the war area with an expected fall of 2.9% in their real GDP in 2022. There is a hope of some recovery in 2023 with GDP growth returning to 1.3%. Russia will see a GDP growth of -8.5% in 2022 and -2.3% in 2023.

    The two charts below show the GDP growth comparison in some major countries of the world after the start of the global pandemic. The first chart shows the performance in the years 2020 and 21.

    The second chart shows the projections by IMF for the years 2022 and 2023.

    Sadly, the war just doesn’t affect the countries directly involved, its economic costs and implications are widespread. Through commodity markets, trade, and to some extent financial interlinkages of the countries, the war can indirectly affect so many more countries.

    Globally we are seeing rise in fuel and food prices since late 2021. The fear of War is aggravating high inflation problem even further. Unfortunately, the world’s poor population, particularly in low-income countries is getting the most impacted by this. To know more about inflation, please click here.

    Many leading economists propose mutual efforts by countries to respond to the war crisis and prevent further economic fragmentation. At the same time, it is important to manage the debt problem, tackle climate change and end the pandemic to bring back economic growth.

    Fighting inflation without slowing down the economy is the toughest challenge many central banks are facing currently. To know more about monetary policy and the role of a central bank, in controlling inflation, please click here.