Global recession could be at hand soon, IMF warns
Update cites slowing economies in US, China, Europe amid several crises
The world could soon be on the brink of a global recession as the economies of the United States, China and Europe slow more sharply than anticipated amid a collision of crises, the International Monetary Fund warned Tuesday.
In an update of the World Economic Outlook, the IMF said economic prospects had darkened significantly in recent months as war in Ukraine, inflation and a resurgent pandemic inflicted pain on every continent. If the thicket of threats continues to intensify, the world economy faces one of its weakest years since 1970, a period of intense stagflation across the globe.
“The world may soon be teetering on the edge of a global recession, only two years after the last one,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post accompanying the report.
The IMF downgraded its global growth forecasts from its April projections, predicting that output will fall to 3.2% in 2022, from 6.1% last year. Growth is expected to slow even further next year as central banks around the world raise interest rates in an effort to tame inflation by cooling their economies.
Inflation is also rising more rapidly and broadly than the IMF anticipated earlier this year. It now expects prices to rise 6.6% in rich countries and 9.5% in emerging markets and developing economies.
The international group also warned of another problem that could emerge as the Federal Reserve raises interest rates. Higher rates are expected to further strengthen the U.S. dollar as investors plow into Treasury bonds that offer lucrative returns.
The IMF said that inflation in emerging markets could be amplified as the appreciation of the dollar makes the imports that they buy with their local currencies more expensive.
Poor countries are already struggling to cope with a food crisis, as exports of grains and cooking oils from Russia and Ukraine have been disrupted by the war, fueling a surge in food costs and raising fears about the prospects of famine and social unrest.
The economic storm facing the world is the result of diminished consumer spending power in the United States, the effects of Russia’s invasion of Ukraine on Europe’s economies, and the property crisis and lockdowns in China, where Beijing continues to take severe measures to contain coronavirus outbreaks.
The IMF underscored that its forecasts are subject to considerable uncertainty and that more downgrades could come. It pointed to the prospect of a sudden shutdown of Russian gas flows to Europe, the stubborn persistence of inflation and more widespread lockdowns in China as looming threats.
According to the report, the likelihood of a global recession is rising. It said the probability of a recession starting in one of the Group of 7 advanced economies was now nearly 15%, four times its usual level.
And it said some indicators suggest the United States was already in a “technical” recession, which the IMF defines as two consecutive quarters of negative growth.