IMF warns global economy teetering on edge of recession amid inflation, Russia-Ukraine war

The International Monetary Fund (IMF) on Tuesday warned of an imminent threat of recession as the top three global economies are facing crippling inflation. Noting the stall in the global output by the US, China, and the Eurozone, the IMF revised its April economic forecast made in the World Economic Forum (WEO), further predicting a significant slowdown in the first since the COVID-19 recovery period began. The IMF downed its growth anticipations for the remaining 2022 to 3.2% (0.4 point reduction) and upcoming 2023 to 2.9% (0.7 points lower) quarters for the US.  

"The outlook has darkened significantly since April...The world may soon be teetering on the edge of a global recession, only two years after the last one,” said the IMF’s economic counsellor, Pierre-Olivier Gourinchas, as quoted by The Guardian.

The US-based global economy observer predicted that the UK's growth will be the weakest among the Group of Seven (G7) economies, with a growth forecast of 3.2% in the remaining 2022 and 0.5% in 2023, which is down by 0.5 and 0.7 points, respectively. Meanwhile, the IMF said that inflation is expected to rise by roughly 2% from its April quarter, i.e. from 6.9% to 8.3%.

War & pandemic mired global economic growth: IMF

IMF’s economic counsellor Gourinchas explained that the current predictions were made given the impact of the two-year-long COVID pandemic followed by the critical war in Ukraine waged by Russia. He reckoned, "The global economy was still reeling from the pandemic and Russia's invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook," The Guardian reported. The IMF official stated that inflation will remain an additional woe for the largest economies, further tightening global finances. “Higher than expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions," Gourinchas elaborated. Separately, he pointed out that amid the tumultuous geopolitical landscape, China’s slowdown has been worse than anticipated due to the re-emergence of COVID and subsequent stringent lockdowns. The situation was exacerbated by the "negative spillovers from the war in Ukraine.”

The IMF further explicitly outlined some of the risks that shroud the global economy, leading to even lower performance. Firstly, the potential threat of Russia completely suspending gas flow to Europe, further adding to the sky-high fuel prices. Lack of finances in the global market will lead to lower outputs and more demand, thus, an increase in the price of imports for import-dependent nations, triggering a more vicious debt crisis. Subsequently, rise in civil unrest due to inflammatory prices of basic supplies, including food, fuel, and medical care. 

Is there an alternative?

The IMF official stated that under the aforementioned situation, the US and the Eurozone are likely to experience "near zero growth" next year. The knock-off effects will be faced by the world, he said, adding that the economic experts are focused on seeking ways to combat inflation, further urging policymakers to hold its top priority. “In a plausible alternative scenario where some of these risks materialise, including a full shutdown of Russian gas flows to Europe, inflation will rise and global growth decelerate further to about 2.6% this year and 2% next year – a pace that growth has fallen below just five times since 1970,” Gourinchas said. He insisted raising interest rates, flagging that although tighter policies will lead to "real economic costs, delaying will only exacerbate hardships."

(Image: AP)