The war in Ukraine, compounded by the economic sanctions imposed on Russia by the United States and allies in NATO (North Atlantic Treaty Organization), prompted the IMF (International Monetary Fund) to sharply scale back its forecasts for world growth to boost economy in 2022 and beyond. In the latest World Economic Outlook report, the quarterly release released this Tuesday (19), the IMF forecast global economic growth of 3.6%, down 0.8 percentage points from January’s 4.4% growth forecast for economies as a whole .
Two factors converge in the framework outlined by the IMF to support the new projections. The first is the rise in international energy and food prices. This price increase has a negative impact on demand and economic activity in the importing countries.
The other factor is the logistical problems resulting from the outages caused by the pandemic, causing a shortage of supplies in the production chains and contracting the supply of finished goods, compounded by China’s zeroCovid19 policy makes it more frequent and stricter to say goodbye to lockdowns.
Both are contributing to both slowing economic growth around the world and intensifying inflationary pressures in most countries.
The same elements would work in opposite directions in the Brazilian economy. According to the IMF, the rise in commodity prices would have a positive net effect on economic activity and at the same time increase current inflationary pressures.
In the new IMF projections, Brazil’s economy will grow by 0.8% in 2022, well above the 0.3% growth forecast released in January but almost half of what was forecast in the October 2021 report The World and even for Latin America.
Accelerating the expected pace of growth, for example, would not be enough to absorb a pleasing volume of idle labor and fill idle manufacturing capacity. The slightly higher growth would be accompanied by an increase in inflation, which would reach 8.2% in 2022, above the 7.5% still expected by Brazilian analysts, while unemployment resists around 13% of the labor force would.
Brazil occupies a prominent position at the top of the list of the largest exporters of food commodities (but also of oil and metals) and has benefited from price increases in this direction. Brazil’s agribusiness sales abroad, for example, were recordbreaking in March a 30% increase from March 2021.
On the other side of the coin of high commodity prices are inflationary pressures stemming directly from international increases in grain and oil prices, but also from internal causes such as Petrobras’ pricing policies linked to external prices and the dollar. In addition, the lack of stock policy and food market regulation as well as the dissolution of the support structure for family farms are also having a negative impact on inflation rates. Estimates that the central bank will raise the nominal interest rate above 13% in 2022 and keep it around 7% in real terms are helping to limit the positive impact of the rise in commodity prices.
The IMF lowered its 2022 growth forecasts for most countries from January forecasts. For the United States, the fund’s economists lowered their estimate of economic growth by 0.3 percentage points to 3.7%. In the case of China, the cut was 0.4 points, bringing activity expansion expectations to 4.4.
Understandably, the biggest negative impact was on Russia. According to the IMF, the Russian economy is expected to contract by 8.5% this year, pushing inflation to over 20% this year and falling another 2.3% in 2023.
Only a few countries, except Brazil, had improved forecasts in the April report compared to the January figures. Such was the case with the IMF’s Latin America and Caribbean forecasts, which now expect regional average growth of 2.5% in 2022, 0.1 point higher than forecast in January. Countries in poor subSaharan Africa would also grow 0.1 points above previously estimated values, with a 3.8% increase this year.
It is no coincidence, and reflecting the weight given to the oil and gas supply issue, that the highest growth the IMF is forecasting for any country in 2002, compared to forecasts earlier in the year, is for Saudi Arabia will. According to IMF forecasts, the Saudi economy, one of the largest oil producers and exporters, will grow 7.6% in 2022, 2.8 points above January’s estimate.