Posted on April 19, 2022 at 3:00 p.m. Updated April 19, 2022 at 7:51 p.m.
Significantly lower growth and a longer lasting rise in inflation. According to the International Monetary Fund (IMF), this is the international situation that is emerging in the coming months. In his first presentation of the economic forecasts, the institution’s new chief economist, Pierre-Olivier Gourinchas, warns: The uncertainty surrounding these forecasts is considerable. »
More than usual. Growth could slow further, while inflation could beat our forecasts if, for example, sanctions extend to Russian energy exports. The continued spread of the Covid-19 virus could lead to more deadly variants […], which led to further blockages and production interruptions. »
The multilateral institution has reduced the increase in world gross domestic product (GDP) this year to 3.6% for the time being. That is eight tenths of a point less than forecast at the beginning of the year before the outbreak of the conflict between Ukraine and Russia. These two countries will experience a deep recession. War-torn Ukraine will see GDP collapse by at least 35%. Russia (-8.5%) and Belarus (-6.4%) are affected by sanctions.
Bordering on the conflict area and dependent on Russian energy resources, the European countries should just be able to maintain slight growth due to the gains at the beginning of the year. But eurozone GDP growth will be just 2.8% in 2022, not 3.9% as expected in January. German growth, now expected at 2.1%, is paying a heavy price, while French GDP is expected to grow by 2.9%.
If growth falters, price increases in rich countries will almost double to an average of 5.7%, from 3.1% last year.
We now expect inflation to remain high for much longer. In the United States and some European countries, it has reached its highest level in more than 40 years.
It should also be noted that the IMF projects an average price for a barrel of oil of almost $107 a year versus $69 in 2021, with prices being particularly volatile. We now expect inflation to stay high for much longer. In the United States and in some European countries, it has reached its highest level in more than 40 years, notes Pierre-Olivier Gourinchas.
As a result, central banks face a difficult trade-off between tackling record inflation and securing the recovery that has taken shape in the wake of the Covid-19 crisis, the fund warns in another financial stability report. As central banks move away from their targets, inflation is likely to prompt more aggressive monetary tightening. The US Federal Reserve has already started. But the rise in interest rates “could lead to a disorderly correction” in financial markets, including at the real estate level, the fund fears.
record national debt
In addition, rising food and fuel prices could trigger social unrest in the poorest countries. The IMF forecasts an average inflation rate of 8.7% in developing countries, up from 5.9% in 2021. The problem is that this commodity price boom and global interest rate pressures will further limit the fiscal space of emerging economies and oil and food imports in developing countries .
A full restructuring of sovereign debt will be necessary.
As the pandemic has pushed government debt to record levels around the world, rising interest rates will mean tough fiscal consolidation decisions “as pressures on social spending and, in some cases, defense costs may remain high,” the IMF said.
At this stage, for the most vulnerable countries, “a complete restructuring of sovereign debt will be necessary,” warns Pierre Olivier Gourinchas. In this area, the common framework created by the G20 to solve a possible over-indebtedness of countries has so far produced hardly any tangible results. “This is a mistake in the global financial system,” regrets the chief economist. However, about 60% of low-income developing countries are already over-indebted or at high risk of over-indebtedness, the multilateral body notes.