Significantly weaker growth: the IMF lowers its forecasts

The numerous crises in the world will hamper long-term global economic growth, he warns International Monetary Fund. The war in Ukraine, but also the blockages in China, lead to significantly lower forecasts.

The International Monetary Fund (IMF) is lowering its forecast for the global economy due to the war in Ukraine. “Overall, economic risks have increased significantly,” IMF chief economist Pierre-Olivier Gourinchas said on Tuesday.

The world economy had not yet fully recovered from the corona pandemic before the Russian attack on Ukraine. “The outlook for the global economy has suffered a serious setback, largely due to Russia’s invasion of Ukraine,” said Pierre-Olivier Gourinchas.

In Europe in particular, the IMF now expects lower growth rates and severe recessions in Russia and Ukraine. The war is also likely to fuel already high inflation.

For Germany, the IMF expects growth of 2.1% for 2022 – this is the lowest rate of all European countries analyzed by the IMF. For 2023, growth in Germany is expected to increase to 2.7%, while France and Italy will experience much slower growth.

Federal Finance Minister Christian Lindner described the downward revision of the International Monetary Fund (IMF) economic forecasts following the war in Ukraine as a “new wake-up call”. “Low growth combined with rising inflation is a dangerous combination,” the FDP politician in Berlin said on Tuesday. Economically, there is no “just business as usual”.

Germany is particularly affected in Europe

Nevertheless, IMF economists do not see a recession in Europe. However, this does not mean that the situation of the German economy will improve. “There are many risk factors for growth in Europe,” says Gourinchas. For example, inflationary pressures are increasing, the risk of the ECB tightening its interest rate policy persists and Europeans are less willing to buy.

Countries particularly dependent on Russian energy supplies, such as Germany and Italy, are also at higher risk of slowing growth.

With growth forecasts of 2.1% in Germany and 2.3% in Italy, both countries are well below the global average. The IMF expects the world economy to grow by 3.6% in 2022 and 2023. In 2021, it was 6.1%.

Compared to January estimates, the IMF has lowered its forecast for 2022 by a whopping 0.8 points and for 2023 by 0.2. The West had previously imposed heavy sanctions on Russia, and other measures such as an oil boycott are being discussed.

The Russian economy is expected to contract further

The Russian economy is expected to collapse by 8.5% in 2022 and contract again by 2.3% in 2023. In 2021, it had grown by 4.7%. A recession of at least 10% is expected for Ukraine this year.

Russia plays a leading role internationally, particularly in the field of energy and raw materials such as oil, gas and metals. Like Ukraine, Russia is also a major wheat and grain exporter. Due to war and sanctions, prices are already rising significantly, which the IMF says will mainly affect poorer countries.

“Inflation has become a current danger”

Many countries should actually reduce their debt, which has exploded during the pandemic, but at the same time mobilize funds for refugees and help poor households with high food and energy prices.

Contrary to what was initially thought, inflation is proving to be much more persistent. The IMF expects a rate of 5.7% in industrialized countries and 8.7% in emerging and developing countries this year. The situation has therefore clearly deteriorated since January – and the IMF does not rule out that it will deteriorate significantly again.

Central banks must now tighten their accommodating monetary policy for a long time. “Inflation has become a clear and current threat to many countries,” said IMF economist Gourinchas. In the United States and some European countries, it is at its highest level in more than 40 years.

There is no threat of a second oil crisis

However, the economist does not want to draw a parallel with the oil crisis of the 1970s. “Many compare the current crisis with the 1970s, but there are differences”, he declared during the conference of hurry.

Measured against the rate of inflation, oil prices rose much faster in the 1970s than they do today, and most countries are now much more diversified in their energy sources than they used to be. were 50 years ago. The absence of collective agreements in many countries also means that workers’ wages do not automatically increase with inflation. Nonetheless, inflation should be taken seriously, Gourinchas stressed.

China is also experiencing slower growth

Frequent and severe corona lockdowns in Chinese metropolises such as Shanghai are also slowing down the global economy. This could increase supply chain issues for many companies. For China – the world’s second-largest economy after the United States – the IMF projects growth rates of just 4.4 and 5.1 percent this year and next. For comparison: in 2021, it was still 8.1%.

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