IMF to Cut Global Growth Outlook Further as Gloom Gathers - Report

The International Monetary Fund (IMF) is taking a very dim view of global economic growth, reports say. The global economic growth outlook will be revised "substantially" down as it issues the next update, Bloomberg News has reported.

According to Ceyla Pazarbasioglu, the IMF's director for strategy, policy and review, the global economy is going through a wave of setbacks. Pazarbasioglu particularly stressed the impact from rising inflation, a decrease in downturn in capital flows to emerging markets, the devastating impact of the Coronavirus pandemic, and the slack in Chinese economic growth.

Challenging for Policymakers

These setbacks have made it 'challenging' for policymakers to find a way out of the rut the global economy has run into.

The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017.
The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017. Reuters

"It's shock after shock after shock which are really hitting the global economy," she said, according to Bloomberg.

She was speaking in Indonesia's Bali at the end of a meeting of the Group of 20 finance ministers and central bank governors. Pazarbasioglu said IMF will "downgrade our forecast substantially," in a review which is due later this month.

Further Downgrade

In April, the IMF downgraded the outlook for the global economy this year to 3.6 percent from 4.4 percent. The downgrade was a direct result of the economic uncertainties from the war in Ukraine that began in February.

Nominal GDP US states 2021; US economy
Nominal GDP of US states 2021 Wikimedia Commons

Meanwhile, a senior official at the Bank for International Settlements also echoed the sentiments expressed by the IMF official. "The path to a soft landing is narrowing; we think it is still a feasible path but certainly not a very easy one ... Where central banks take monetary policy in a rapid and decisive manner and have a front-loaded response to inflation, that is more conducive to a soft landing," said BIS head of research Hyun Song Shin.

Data showed in late June that the US economy contracted in the first quarter at a faster rate than anticipated earlier. According to the Commerce Department's data, the world's largest economy shrank at an annual rate of 1.6 percent in the first quarter.

Stagflation Risk

The contraction was more than the 1.5% previously reported. According to the advance estimate released in April, the GDP decline was 1.4 percent while the second estimate showed the drop would be 1.5 percent.

The drop has been attributed to a decrease in exports, drop in federal government spending aand private inventory investment, as well as a decrease in state and local government spending. At the same time, imports increased during the period.

In early June the World Bank said global economic growth will slow down this year
as the Russian invasion of Ukraine has worsened the prolonged impact of the COVID-19 pandemic. The world is entering a protracted period of feeble growth and elevated inflation, the Bank added.

Picture for representation
World Bank Reuters

World Bank Projection

The World Bank also warned that the global economy is likely to face the risk of 'stagflation', which happens when high inflation is accompanied with low growth. This scenario will invariably push many countries into recession, the Bank warned.

The World Bank also slashed its forecast for global growth this year to 2.9 percent, which is remarkably lower than the 4.1 percent growth it forecast in January. The Bank also served up more pessimistic news, saying global growth will not rebound next year, and the global economy will post only 3 percent growth in 2023.