The global economy is facing its worst recession since the 1930s. That’s according to the International Monetary Fund, which has sharply cut its 2020 forecast because of the coronavirus pandemic and lockdowns. The Fund has called on governments to take “swift and sizable” action to support the economic recovery.
The IMF has cut its 2022 global growth forecast to just 3.2% and warned the slowdown risks being even more severe. It said fast-rising prices were to blame for much of the slowdown, with households and businesses squeezed by a combination of higher prices and higher borrowing costs as policymakers raise interest rates to try to counter inflation.
“The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook,” economist Pierre-Olivier Gourinchas of IMF in a blog outlining the international lending body’s latest economic forecast.
“The outlook has darkened significantly” since April, the last time the IMF issued forecasts, he added.
The global economy contracted in the three months to July, which was the first decline since the pandemic hit, the IMF said.
The probability of a recession in the G7 economies – Canada, France, Germany, Italy, Japan, the US and UK – now stands at roughly 15% – nearly four times higher than usual.
While UK growth is expected to remain relatively strong this year, Mr Gourinchas said unusually high inflation – faster than in Europe or the US – is expected to take a toll in 2023.
“If you were to look at both years together, it’s actually not very far from where the other advanced economies are,” he told the BBC. “The one thing that worries me more about the UK economy is that their inflation numbers seem to be quite high. There is a high pass through from high gas prices to broader prices in the economy.
“That would signal even further monetary policy tightening by the Bank of England and that would also weigh down on growth going forward.”
The IMF now expects inflation to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies – nearly a full percentage point higher than it expected in April.
The US saw the steepest downgrade of any country for 2022. The IMF cut its growth forecast for the world’s largest economy to 2.3% this year, from 3.7% previously, and to just 1% in 2023.
Meanwhile growth in China is expected to fall to 3.3% this year, the slowest rate in nearly four decades, as the country wrestles with new Covid lockdowns and a property crisis.
“We can be reasonably hopeful that China might be rebound,” Mr Gourinchas said, adding that he was “much more concerned about both the inflation path and the tightening of monetary policy leading to a slowdown going ahead”.
It is predicting UK growth will fall to just 0.5% in 2023, much lower than its forecast in April of 1.2%.
The global economy has shrunk for the first time since 2020, the IMF said, hit by the Ukraine war and Covid-19.
With growth stalling in the UK, US, China and Europe, the world “may soon be teetering on the edge of a global recession”, it said.
“We know that people are feeling the impact of rising prices, caused by global economic factors, triggered by the illegal Russian invasion of Ukraine,” a HM Treasury spokesperson said in a statement, adding that help for households included £400 off energy bills plus personal tax cuts worth up to £330 a year.
