OPINION: Neither the International Monetary Fund nor most other forecasters believe that the current shortfall in global growth will push the world into outright recession. That could well be wishful thinking for several reasons.
NEW HAVEN, Conn. —The predictable downward revision cycle for the global economic outlook has officially begun. That’s the message from the semiannual World Economic Outlook just released by the International Monetary Fund, which reinforces earlier revisions from several prominent private forecasting teams.The revision, largely in response to the war in Ukraine, is a big one—a sharp reduction in world economic growth to 3.6% for 2022, fully 1.
For starters, forecasters were overly optimistic in extrapolating the sugar high of 2021 into the future. The 6.1% surge of global growth in 2021 was the sharpest rebound on record, according to IMF statistics dating back to 1980. But this followed the steepest plunge on record, a -3.1% collapse in 2020.
The latest IMF outlook puts average Chinese growth in 2022-23 at 4.75%, only a little more than half the post-GFC trend when strong Chinese growth was literally the only thing that prevented the world from relapsing into recession over the 2012-16 period. As was the case back then, global resilience without a more vigorous Chinese economy is highly unlikely.
Inflation is destabilizing This superficial arithmetic argument misses the point. With the U.S. consumer price index surging by 8.5% year-over-year in March, there is of course an excellent chance that this key barometer of inflation will be considerably lower by year-end.
Real interest rates matter in maintaining price stability and driving economic growth. When assessing risks to the global business cycle, the bottom line is that the upswing in real rates has much further to go.
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