Growth forecasts downgraded, ‘horrific autumn’ for Britons, the end of streaming’s easy-money years
Washington
The IMF’s Fiscal Monitor is the final in a flurry of reports from both the fund and the World Bank highlighting the fragile state of the global economy as it struggles with the lingering effects of the pandemic and the shock of war in Ukraine.
Today’s instalment points out the “narrowing fiscal space” faced by governments and the likelihood that any short-term benefit to public finances from higher inflation will soon disappear under the pressure of higher food and energy prices alongside rising interest rates.
The IMF now expects global prices to rise 7.4 per cent this year, much higher than the 3.2 per cent it forecast in late 2020.
In its World Economic Outlook published yesterday, the fund cut its global growth forecast for this year to 3.6 per cent, down 0.8 points since its January projections and a sharp fall from its estimated total for 2021 of 6.1 per cent.
Risks had “worsened significantly” from the war in Ukraine, it said, putting paid to the idea that this year would see a stronger recovery from the pandemic. On Monday, the World Bank also cut its global growth forecast from 4.1 per cent to 3.2 per cent.
A potential embargo on Russian oil and gas would raise inflation even further, the IMF said.
The effects of increasing price pressures, falling output and shrinking confidence across the global economy were also highlighted by the Brookings-FT tracking index, which compares global and country information with historical averages to determine whether data in a specific period is better or worse than normal. The index shows a marked slowing of growth since late 2021, with confidence levels dropping and a recent dip in financial market performance, leaving policymakers with “grim quandaries”.
IMF chief Kristalina Georgieva told the Financial Times last week that the Ukraine war was a “massive setback” for the world economy. But as well as causing “catastrophic” losses in Ukraine and a severe contraction in Russia, there were also wider risks from a more fragmented global economy, she argued.
“In a world where war in Europe creates hunger in Africa; where a pandemic can circle the globe in days and reverberate for years; where emissions anywhere mean rising sea levels everywhere — the threat to our collective prosperity from a breakdown in global co-operation cannot be overstated,” she said.
Russia is planning legal action to recover $300bn of its foreign currency reserves — nearly half its total holdings — frozen through western sanctions. The tactic has prevented Russia’s central bank supporting the falling rouble and forced it to impose capital controls.
The energy crisis continues. Our Big Read tackles the crucial question: Can the EU wean itself off Russian gas? Despite Germany’s reliance on Russian supplies, it is resisting calls to restart nuclear power, as our new explainer details. US natural gas prices meanwhile have hit a 13-year high.
Yesterday’s IMF report also forecast that the UK would have the slowest growth in the G7 next year, increasing by just 1.2 per cent, and that the country’s inflation would be higher than other member states and slower to return to its 2 per cent target.
The FT editorial board said the British government needed to recognise the continuing cost burden of coronavirus on healthcare, business and schools.
