IMF Again Cuts Global Growth Forecast Amid Inflation, War in Ukraine
The International Monetary Fund now sees growth slowing to 3.2% this year and 2.9% in 2023.
3 min
WASHINGTON—The International Monetary Fund lowered its outlook for global economic growth again for 2022 and 2023, as soaring inflation and the spillover from the war in Ukraine cut into household purchasing power around the world and prolonged pandemic lockdowns slowed China’s growth engine.
The international financial institution said Tuesday it now sees world economic growth slowing to 3.2% this year, compared with a 6.1% expansion in 2021. The group has repeatedly cut its forecast for 2022, from 4.9% in October, 4.4% in January and 3.6% in April.
Growth is expected to further slow to 2.9% in 2023, significantly slower than the 3.6% expansion projected in April.
The IMF warned the actual outcomes could be worse, citing a series of downside risks. Among them are a sudden stop of European gas imports from Russia; stubborn inflation unrestrained by policy measures; debt distress in poorer nations induced by tighter global financial conditions; and a further slowdown in China triggered by renewed Covid-19 outbreaks and an escalation of its property sector crisis. And growing geopolitical fragmentation between Western democracies and Russia and China could impede global trade and economic policy cooperation, the group said.
“The risks to the outlook are overwhelmingly tilted to the downside,” the IMF said, adding that global growth could be as low as 2.6% in 2022 and 2% in 2023.
The latest forecasts reflect a sharp upward revision in the group’s inflation outlook. Further squeezing living standards for people around the world, consumer prices are expected to rise 6.6% in rich economies and 9.5% in emerging markets and developing nations this year, upward revisions of 0.9 and 0.8 percentage points, respectively, from April.
“We have higher inflation and it’s broader inflation. It’s not just energy and food. It’s seeping into services and goods, and it’s well ahead of central bank targets in most countries,” IMF chief economist Pierre-Olivier Gourinchas said in an interview. “That’s leading to an erosion of purchasing power. In many countries, wages have not been keeping up with price inflation.”
Mr. Gourinchas said taming inflation must be the first priority for policy makers, even if it means slowing down economic activities in the short term. “Bringing down inflation in a timely manner is also creating the conditions for stable growth and a stable macroeconomic environment in the years ahead,” he said.
He added that governments should use targeted fiscal policy support to help ease the impact of inflation on the most vulnerable, but that such measures must be paired with tighter spending elsewhere to avoid offsetting the effect of monetary policy to tame inflation.
The group sees worldwide inflation returning to near prepandemic levels by the end of 2024, after easing to 5.7% by late 2023.
Driving the downward revisions in global growth forecasts were slowdowns in the U.S. and China.
The IMF now sees U.S. growth slowing to 2.3% this year and 1% in 2023, compared with the expansion of 5.7% in 2021. In April, the group forecast the U.S. economy to grow 3.7% this year and 2.3% in 2023. The cut reflects significantly reduced private consumption amid price increases and the expected impact of tighter monetary policy by the Federal Reserve.
The IMF expects China’s growth to moderate to 3.3% this year from 8.1% last year and compared with an expansion of 4.4% seen earlier for this year. The activities slowed sharply in the world’s second-largest economy this year because of Beijing’s strict pandemic lockdown policy, as well as the worsening crisis in the country’s property sector, which is dragging down sales and real-estate investments.
“The slowdown in China has global consequences,” the IMF said. “Lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners.”
The war in Ukraine has had more negative impacts on European economies than earlier expected because of higher energy prices and weaker consumer confidence. Persistent supply chain disruptions and rising input costs are also weighing on their manufacturing sector. The IMF’s growth outlook for the euro area was cut to 2.6% in 2022 and 1.2% in 2023, compared with growth of 2.8% and 2.3% projected in April, respectively.
“We have a slowdown in the U.S., in China and in the euro area over 2022 and ’23,” Mr. Gourinchas said. “The three largest economies in the world are stalling right now. And of course the global economy is going to reflect that.”
One country that has fared better than earlier expectations is Russia. While the war in Ukraine has hurt its economy significantly, rises in oil and gas prices triggered by the war have increased the country’s export revenues, and thus funds to continue with the war. Mr. Gourinchas said that Russia’s central bank has also skillfully managed the impact of the economic sanctions imposed by Western governments by raising interest rates swiftly and preventing a financial meltdown. The IMF expects Russia’s economy to shrink 6% this year and 3.5% next year, compared with its April forecast for contractions of 8.5% and 2.3%, respectively.
Still, the actual economic contraction in Russia and in China caused the global gross domestic product to shrink in the second quarter—the first such phenomenon since 2020.
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As Paris makes its final preparations for the Olympic games, its residents are busy with their own—packing their suitcases, confirming their reservations, and getting out of town.
Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country. Hotels and holiday rentals in some of France’s most popular vacation destinations—from the French Riviera in the south to the beaches of Normandy in the north—say they are expecting massive crowds this year in advance of the Olympics. The games will run from July 26-Aug. 1.
“It’s already a major holiday season for us, and beyond that, we have the Olympics,” says Stéphane Personeni, general manager of the Lily of the Valley hotel in Saint Tropez. “People began booking early this year.”
Personeni’s hotel typically has no issues filling its rooms each summer—by May of each year, the luxury hotel typically finds itself completely booked out for the months of July and August. But this year, the 53-room hotel began filling up for summer reservations in February.
“We told our regular guests that everything—hotels, apartments, villas—are going to be hard to find this summer,” Personeni says. His neighbours around Saint Tropez say they’re similarly booked up.
As of March, the online marketplace Gens de Confiance (“Trusted People”), saw a 50% increase in reservations from Parisians seeking vacation rentals outside the capital during the Olympics.
Already, August is a popular vacation time for the French. With a minimum of five weeks of vacation mandated by law, many decide to take the entire month off, renting out villas in beachside destinations for longer periods.
But beyond the typical August travel, the Olympics are having a real impact, says Bertille Marchal, a spokesperson for Gens de Confiance.
“We’ve seen nearly three times more reservations for the dates of the Olympics than the following two weeks,” Marchal says. “The increase is definitely linked to the Olympic Games.”
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According to the site, the most sought-out vacation destinations are Morbihan and Loire-Atlantique, a seaside region in the northwest; le Var, a coastal area within the southeast of France along the Côte d’Azur; and the island of Corsica in the Mediterranean.
Meanwhile, the Olympics haven’t necessarily been a boon to foreign tourism in the country. Many tourists who might have otherwise come to France are avoiding it this year in favour of other European capitals. In Paris, demand for stays at high-end hotels has collapsed, with bookings down 50% in July compared to last year, according to UMIH Prestige, which represents hotels charging at least €800 ($865) a night for rooms.
Earlier this year, high-end restaurants and concierges said the Olympics might even be an opportunity to score a hard-get-seat at the city’s fine dining.
In the Occitanie region in southwest France, the overall number of reservations this summer hasn’t changed much from last year, says Vincent Gare, president of the regional tourism committee there.
“But looking further at the numbers, we do see an increase in the clientele coming from the Paris region,” Gare told Le Figaro, noting that the increase in reservations has fallen directly on the dates of the Olympic games.
Michel Barré, a retiree living in Paris’s Le Marais neighbourhood, is one of those opting for the beach rather than the opening ceremony. In January, he booked a stay in Normandy for two weeks.
“Even though it’s a major European capital, Paris is still a small city—it’s a massive effort to host all of these events,” Barré says. “The Olympics are going to be a mess.”
More than anything, he just wants some calm after an event-filled summer in Paris, which just before the Olympics experienced the drama of a snap election called by Macron.
“It’s been a hectic summer here,” he says.
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Parisians—Barré included—feel that the city, by over-catering to its tourists, is driving out many residents.
Parts of the Seine—usually one of the most popular summertime hangout spots —have been closed off for weeks as the city installs bleachers and Olympics signage. In certain neighbourhoods, residents will need to scan a QR code with police to access their own apartments. And from the Olympics to Sept. 8, Paris is nearly doubling the price of transit tickets from €2.15 to €4 per ride.
The city’s clear willingness to capitalise on its tourists has motivated some residents to do the same. In March, the number of active Airbnb listings in Paris reached an all-time high as hosts rushed to list their apartments. Listings grew 40% from the same time last year, according to the company.
With their regular clients taking off, Parisian restaurants and merchants are complaining that business is down.
“Are there any Parisians left in Paris?” Alaine Fontaine, president of the restaurant industry association, told the radio station Franceinfo on Sunday. “For the last three weeks, there haven’t been any here.”
Still, for all the talk of those leaving, there are plenty who have decided to stick around.
Jay Swanson, an American expat and YouTuber, can’t imagine leaving during the Olympics—he secured his tickets to see ping pong and volleyball last year. He’s also less concerned about the crowds and road closures than others, having just put together a series of videos explaining how to navigate Paris during the games.
“It’s been 100 years since the Games came to Paris; when else will we get a chance to host the world like this?” Swanson says. “So many Parisians are leaving and tourism is down, so not only will it be quiet but the only people left will be here for a party.”
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