Global economy to slow down further, IMF says

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The International Monetary Fund updated Tuesday its global growth outlook to 3.2 percent this year and 2.9 percent the next, a further downgrade to an already downbeat April outlook of 3.6 percent for both this year and next.

It also revised inflation upward to 6.6 percent in advanced economies and 9.5 percent in emerging markets — nearly a full percentage point higher than previously forecasted.

Fighting inflation should be “the first priority,” the fund said in its latest report, counselling central banks that started tightening monetary policy that they should stay the course. Meanwhile, governments should target any spending meant to cushion inflation impacts to the most vulnerable and offset those outlays by higher taxes or spending cuts elsewhere, so as to avoid adding to inflationary pressures.

“Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them,” the IMF wrote.

The world’s economy contracted in the second quarter of this year, the fund said, due to high inflation in the U.S. and Europe, COVID-19 lockdowns in China, and Russia’s war in Ukraine.

The eurozone is now expected to grow by 2.6 percent this year and 1.3 percent the next, down from the previous forecast of 2.9 percent this year and 2.5 percent in 2023.

The fund sees multiple risks clouding the horizon, including the end of Russian gas flows to Europe, a de-anchoring of inflation expectations, tighter financing conditions, renewed COVID-19 outbreaks, social unrest triggered by food insecurity and high energy prices, and trade restrictions.

If these risks materialize, global growth would further slow down and grind to a halt in the U.S. and Europe in 2023, the fund said.