The International Monetary Fund has cut its global growth forecast for the second time this year to 3.6% from 4.4% in its January World Economic Outlook and the 6.1% rise in 2021.
It wasn’t hard to find the reasons for the cut – the pandemic, rising inflation from the Russian invasion of Ukraine. That also saw the Fund cut its 2023 forecast by 0.2% to 3.6% as well.
But Australia will outperform the world this year with growth estimated at 4.2%, before slipping back to behind the global average in 2023.
And the fund warned that further sanctions on Russia to target energy exports would cause another major drop in global output, while a sharper than expected slowing in China could also add to the negatives facing global growth this year and next.
Rising prices for food, energy and other goods could trigger social unrest, particularly in vulnerable developing countries, the IMF warned.
“Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, the Fund’s chief economist, wrote in a blog post accompanying the report. “This crisis unfolds even as the global economy has not yet fully recovered from the pandemic.”
Mr. Gourinchas said the war was slowing growth and spurring inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian supplies of oil, gas and metals, along with Ukrainian exports of wheat and corn, will ripple through commodities markets and across the global economy “like seismic waves.”
“Uncertainty around these projections is considerable, well beyond the usual range,” Mr. Gourinchas wrote. “Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.”
The Fund said the outlook for prices was not good this year, especially for poor and middle ranking emerging economies.
In fact rising prices around the world show no signs of abating, the IMF pointed out said, even if supply chain problems ease.
It expects inflation to remain high throughout 2022, projecting it at 5.7% in advanced economies and 8.7% in emerging markets. That’s a jump of 1.8 and 2.8 percentage points from January’s forecast.
Inflation is forecast to fall to 2.5% for the advanced economies in 2023 and a still high 6.5% for emerging and developing economies.
On Monday the World Bank also warned about the weakening health of the global economy, saying the lingering pandemic, Covid lockdowns in China and higher inflation would damage activity and growth It cut its 2022 growth forecast to a gloomier 3.2% from 4.1%.
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The commodities price boom sparked by the Russian invasion of Ukraine will boost GDP in Australia this year, unlike the world economy generally, allowing us to outperform the world economy, but not in 2023 when we are forecast to fall behind the pack again.
Real growth in Australia is projected to rise to 4.2% this year, compared to the 4.1% rise forecast in the January edition of the Fund’s World Economic Outlook (WEO) but well above the lowered world estimate for 2022 of 3.6%.
Growth though is forecast to fall sharply in 2023 to just 2.5%, following the trendelsewhere in major economies.
Inflation is forecast to rise 3.9% (it was 3.5% in 2021) which will be well below the forecast for advanced economies of 5.7%. Inflation is forecast to fade to 2.7% in 2023.
Unemployment is forecast to be 4% this year, rising to 4.3% in 2023, a forecast that the Morrison government will ignore in its election campaign.
The IMF estimated Ukraine’s GDP will collapse by 35% this year, while Russia’s output will shrink by 8.5% in 2022 but that could double to 17% if the sanctions on Russian energy exports were tightened, as many in Europe want.
The US will suffer the least damage from the war and has had its growth forecast for 2022 shaved by 0.3 points to 3.7%. Germany and Italy, both more exposed to Russia, have had their growth estimates reduced by 1.7 points and 1.5 points respectively, to 2.1% and 2.3%.
France’s growth was cut 0.6 of a point to 2.9%, Japan’s was cut 0.9 to 2.4% and the UK’s 3.7% estimate for this year is down 1%.
China’s growth is now estimated at 4.4% this year, down from 4.8% at the start of the year and 8.1% for all of 2021. GDP rose at an annual 4.8% rate in China in the March quarter but quarter on quarter it eased to 1.3% from 1.6%.
