IMF Again Cuts Global Growth Forecast Amid Inflation, War in Ukraine
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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.

By YUKA HAYASHI
Wed, Jul 27, 2022 1:35pmGrey Clock 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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The Knight Frank Luxury Investment Index reveals investments of passion are paying strong dividends, in some areas at least

By Bronwyn Allen
Tue, Apr 9, 2024 4 min

Art was the investment of passion that gained the most in value in 2023, according to Knight Frank’s Luxury Investment Index (KFLII). This is the second consecutive year that art has risen the most among the 10 popular investments tracked by the index, up 11 percent in 2023 and 29 percent in 2022. Art was followed by 8 percent growth in jewellery, 5 percent growth in watches, 4 percent growth in coins and 2 percent growth in coloured diamonds last year.

The weakest performers were rare whisky bottles, which lost nine percent of their value, classic cars down six percent and designer handbags down four percent. Luxury collectables are typically held by ultra-high-net-worth individuals (UHNWIs) who have a net worth of US$30 million or more. Knight Frank research shows 20 percent of UHNWI investment asset portfolios are allocated to collectables.

In 2023, the KFLII fell for only the second time, with prices down 1 percent on average.

Despite record-breaking individual sales in 2023, a surge in financial market returns contributed to a shift in allocations impacting on luxury asset value,” the report said. “… our assessment reveals a need for an ever more discerning approach from investors, with significant volatility by sub-market.

Sebastian Duthy of AMR said the 2023 art auction year began with notable sales including a record price for a Bronzino piece. But confidence waned as the year went on.

“It was telling that in May, Sotheby’s inserted one of its top Old Master lots – a Rubens’ portrait – into a 20th Century Modern evening sale. But by then, it was clear that the confidence among sellers, set by the previous year’s record-busting figures, was ebbing away. In the same month, modern and contemporary works from the collection of the late financier Gerald Fineberg sold well below pre-auction estimates.”

The value of ultra contemporary or red-chip’ art contracted the most in 2023.

“Works by a growing group of artists born after 1980 have been heavily promoted by mega galleries and auction houses in recent years. With freshly painted works in excess of £100,000 almost doubling in 2022, it was little surprise that this sector was one of the biggest casualties last year. There is a risk there are now simply too many fresh paint artists with none really standing out.”

In the jewellery market, Mr Duthy noted that demand was strongest for coloured gemstones of exceptional quality, iconic signed period jewels, single-owner collections, and items with historic provenance in 2023. In the watches market, Mr Duthy said collectors chased the most iconic and rare timepieces.

A Rolex John Player Special broke the model record when it sold for £2 million at Sotheby’s in May, double the price for a similar example sold at Phillips in 2021,” he said.

Although whisky was the worst-performing collectable in 2023, it has delivered the highest return on investment among the 10 items tracked by the index over the past decade, up 280 percent. Andy Simpson of Simpson Reserved, said 2023 was a challenging year but the best of the best bottles gained 20 percent in value. In my opinion some bottles that lost significant value in 2023 will return through the next two years as they are simply so scarce and, right now at least, so undervalued, Mr Simpson said.

Whisky was the worst performing collectable in 2023 but it had highest return on investment over a 10-year period. Image: Shutterstock

Classic car expert Dietrich Hatlapa said the 6 percent fall in collectable vehicle values in 2023 followed a 22 percent surge in 2022. The strong performance of other investment classes such as equities may have dampened collectors’ appetites it’s a very small market so it only takes a minor change in portfolio allocations to have an effect, and there has also probably been a degree of profit taking. However, we have seen some marques like BMW (up 9 percent in value) and Lamborghini (up 18 percent), which appeal to a younger breed of collector, buck the trend in 2023.”

Mr Duthy said a dip in the share price of the top luxury handbag brands last Autumn appeared to spook investors. Last autumn it was possible to pick up an Hermès white Niloticus Himalaya Birkin in good condition for under £50,000. The recent slide reflects a general correction at the upper end that’s been underway for some time rather than changing attitudes to the harvesting of exotic skins.

According to Knight Frank’s Attitudes Survey, the top five investments of passion among Australian UHNWIs are classic cars, art and wine. Fine wine values gained just 1 percent in 2023 as the market continued its correction, said Nick Martin of Wine Owners. “It’s been a hell of a long run, so I’m not that surprised. Some wines from very small producers that had enjoyed the most exuberant growth have seen the biggest drops. It had got a bit silly, £50 bottles had shot up to £200 or £300.”

Favourite investments of passion: Australia vs Global

1. Classic cars (61 percent of Australian UHNWIs vs 38 percent of global UHNWIs)
2. Art (58 percent vs 48 percent)
3. Wine (48 percent vs 35 percent)
4. Watches (42 percent vs 42 percent)
5. Jewellery (18 percent vs 28 percent)

Best returns among investments of passion (10 years)

1. Whisky 280 percent
2. Wine 146 percent
3. Watches 138 percent
4. Art 105 percent
5. Cars 82 percent

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