The International Monetary Fund is warning that the world is in for a rough ride, with more than a third of the global economy forecast to contract over this year and next amid a cost-of-living crisis fueled by inflation and exacerbated by factors such as Russia’s war in Ukraine.
For most people, it will feel like a recession.
“The worst is yet to come,” said the fund’s Chief Economist Pierre-Olivier Gourinchas. Speaking to a packed press conference Tuesday to launch the latest World Economic Outlook, he had a grim warning on global inflation, saying it is expected to peak at 9.5% this year and will remain elevated for longer than previously forecast.
The world is in for one of the worst periods for economic growth in the last two decades, surpassed only by the 2008 global financial crisis and the start of the COVID-19 pandemic, according to the report, which was released as finance ministers and global leaders gather in Washington for the World Bank-IMF annual meetings.
Global growth is forecast to sharply decelerate from 6% last year to 3.2% this year and again slow next year to just 2.7%.
Who’s hit hardest: IMF has broad worries, but it warns that inflation will hit the lowest-income people and countries the hardest. Climate change in a time of uncertainty is only adding to the risks.
“Extreme weather events might undermine the global food supply, placing upward pressure on the prices of foods that make up a large part of diets, with dire consequences for the world’s poorest countries,” IMF wrote in the report, which dedicated a special section to the food price shocks.
Moreover, IMF is warning that the repercussions won’t just be short-term. Many lower-income nations are expected to suffer economic woes “for years to come,” especially those that have not fully recovered economically from the COVID-19 pandemic, those where schools were shuttered for longer periods, or those hit by consequences of the war in Ukraine.
What’s next: IMF says risks remain tilted to the downside, meaning things may get even worse than the baseline forecast. For example, next year has a chance of seeing growth sputter to below 2%, an historically low level that would be a real cause for alarm. There is a possibility it could be even worse.
Further, food and energy shocks remain serious risks, especially with the U.S. dollar getting stronger, pushing up inflation. The energy crisis is likely to have serious ramifications, with IMF keeping a close eye on Europe.
“Winter 2022 will be challenging, but winter 2023 will likely be worse,” Gourinchas said.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
