IIF sees world economy ‘flatlining’ this year

NEW YORK: The world economy will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the Institute of International Finance (IIF).

The Washington-based IIF, which counts more than 450 financial-services companies worldwide as members, forecasts that global gross domestic product (GDP) will expand by 2.2% this year, after climbing by roughly 6% in 2021 as the world economy bounced back from a pandemic-driven shutdown.

This year’s forecast is equivalent to a “de-facto flatlining” in the global economy, the IIF said: If world GDP merely held at end 2021 levels throughout 2022, annual growth this year would come in at 2.3%.

“That leaves little room to avoid an outright GDP contraction,” IIF chief economist Robin Brooks and his colleagues said in a report.

The IIF forecast is markedly lower than that of the International Monetary Fund, which last month predicted that global GDP would expand 3.6% this year, on a purchasing-power-parity basis.

Brooks and his colleagues see a confluence of shocks damaging the world economy this year. The war in Ukraine is taking a toll on businesses and consumers in the eurozone and will push the economy there into recession in the second half of this year.

China’s efforts to contain the spread of the Omicron variant of the Covid-19 virus will lead to a contraction in its GDP this quarter.

“Risks to our forecast are tilted to the downside because markets are taking an increasingly dim view of central bank policy normalisation,” the IIF economic team wrote.

“A disorderly tightening in financial conditions is underway.”