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The world economy is facing a severe situation: the Russian-Ukrainian war has pushed up energy and food prices, inflation is severe, and China is unable to become the “locomotive” of the global economy due to the “zero” policy of the new crown epidemic.
The International Monetary Fund (IMF) has warned that the global economy is facing a recession as the war over Russia’s invasion of Ukraine pushes up energy and commodity prices and that “the worst is yet to come” and that the recession will be felt by many in 2023.
The latest World Economic Outlook report released by the International Monetary Fund believes that more than one-third of the global economy will shrink in 2022 or 2023, while the three largest economies of the United States, the European Union and China will continue to be in growth stagnation.
What other details are there in the IMF’s forecast for the economic outlook? Why is the agency’s forecast important?
BBC Chinese combs the following four points of view:
1. What are the key contents of the IMF report?
The report predicts that the global economic growth rate will be 3.2% in 2022; the global economic growth rate will further slow down to 2.7% in 2023, and it may drop below 2%.
The report believes that if the global financial crisis and the worst stages of the new crown epidemic are excluded, such economic growth will be the worst since 2001.
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While the economy is performing extremely poorly, the report also expects global inflation to rise from 4.7% in 2021 to 8.8% in 2022. However, the report expects it to fall to 6.5% and 4.1% in the next two years.
Second, the key factors affecting the global economy?
According to Pierre-Olivier Gourinchas, Economic Adviser and Director of Research at the International Monetary Fund, there are three reasons for the global economic woes:
- Russia invaded Ukraine;
- Inflationary pressures persist and increase;
- China’s economic growth has slowed.
Russia’s war with Ukraine has cut Russian gas supplies to less than 20% of 2021 levels, while also causing gas prices in Europe to quadruple from 2021 levels.
In addition, the conflict has pushed up food prices on world markets.
3. How does the report talk about the China factor?
The report pointed out that China’s frequent implementation of lockdown measures under the new crown epidemic prevention “zero” policy has adversely affected the economy, especially in the second quarter of 2022.
In addition, the real estate sector, which accounts for about one-fifth of China’s economic activity, is in rapid decline.
“Given the size of the Chinese economy and its importance to global supply chains, this will have significant implications for global trade and economic activity.”
The IMF report downgraded China’s economic growth forecast for 2022 and 2023 to 3.2 percent and 4.4 percent, respectively.
4. What is the solution?
The International Monetary Fund believes that the world economy is at a very fragile period in its history.
The economic outlook continues to face significant downside risks, while policy trade-offs in response to the cost of living crisis have become extremely difficult, Guranza said.
The report points out that whether policy tightening is too small or too large, there will be risks. Authorities should use financial policy when necessary to ensure market stability, but central banks need to implement monetary policy in a calm, firm focus on curbing inflation.
“It’s like a car with two drivers, both of whom have a steering wheel: one wants to go left and the other wants to go right,” Gulensa told the BBC.
He added: “One is the central bank trying to cool the economy so that it can ease price pressures, while the other is looking to increase spending to help households get through … that can be difficult to function effectively.”
What is the International Monetary Fund?
The International Monetary Fund is an international organization consisting of 190 member countries. It was established on December 27, 1945, and became a United Nations agency in November 1947.
The IMF’s funding comes from the share subscribed by each member country, which is determined by economic indicators such as GDP, openness, economic volatility, and international reserves.
The organization is mainly responsible for monitoring international economic trends and providing economic support for three tasks:
- Track economic and financial events: monitor countries’ economic performance and potential risks, such as trade disputes or uncertainty caused by Brexit;
- Advising its members to improve the economy: such as the very rare recent criticism of the UK government’s tax cuts, arguing that it would worsen the inflation problem;
- Short-term loans and aid to countries in economic distress: For example, in 2018, Argentina received the largest loan in the history of the International Monetary Fund, totaling $57 billion.
Why is the IMF important?
The total amount the IMF can lend to its members is $10 trillion.
The IMF is often referred to as the “lender of last resort”: in times of crisis, countries can turn to it for financial assistance.
But the role of the IMF has also been questioned and criticized. Harvard economist Benjamin Friedman argues that it’s hard to measure the group’s effectiveness because it’s impossible to know whether its interventions are making things better or “worse than otherwise.” “.
However, the IMF also has a track record of some successful interventions.
In 2002, Brazil received a loan from the IMF to avoid defaulting on its debt. The government was then able to turn around the economy relatively quickly and paid off its entire debt two years early.