The International Monetary Fund is projecting that global growth will remain unchanged in 2022 at 3.2%.

However, it is warning of slowdown in the Gross Domestic Product of the world to 2.7% in 2023 — 0.2 percentage points lower than the July forecast — with a 25% probability that it could fall below 2%, its October 2022 World Economic Outlook has revealed.

 More than a third of the global economy will contract this year or next year, while the three largest economies — the United States, the European Union, and China — will continue to stall.

In short, it said, the worst is yet to come, and for many people 2023 will feel like a recession.

“Russia’s invasion of Ukraine continues to powerfully destabilize the global economy. Beyond the escalating and senseless destruction of lives and livelihoods, it has led to a severe energy crisis in Europe that is sharply increasing costs of living and hampering economic activity. Gas prices in Europe have increased more than four-fold since 2021, with Russia cutting deliveries to less than 20% of their 2021 levels, raising the prospect of energy shortages over the next winter and beyond”.

“More broadly, the conflict has also pushed up food prices on world markets, despite the recent easing after the Black Sea grain deal, causing serious hardship for low-income households worldwide, and especially so in low-income countries”, it explained.

For many emerging markets, the Fund said the strength of the dollar is causing acute challenges, tightening financial conditions, and increasing the cost of imported goods. The dollar is now at its highest level since the early 2000s.

So far, this appreciation appears, it opined is mostly driven by fundamental forces, such as the tightening of monetary policy in the United States and the energy crisis, adding, the appropriate response in most countries is to calibrate monetary policy to maintain price stability, while letting exchange rates adjust, conserving valuable foreign exchange reserves for when financial conditions really worsen.

“As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments, such as US Treasuries, and pushing the dollar even higher. Now is the time for emerging market policymakers to batten down the hatches”.

Inflation and uncertainty

Inflation has soared to multi-decade highs, prompting rapid monetary policy tightening and squeezing household budgets, just as COVID-19-pandemic-related fiscal support is waning.

Many low-income countries are facing deep fiscal difficulties. At the same time, Russia’s ongoing war in Ukraine and tensions elsewhere have raised the possibility of significant geopolitical disruption.

The Fund said although the pandemic’s impact has moderated in most countries, its lingering waves continue to disrupt economic activity, especially in China; and intense heat waves and droughts across Europe and central and south Asia have provided a taste of a more inhospitable future blighted by global climate change.

Central Banks tackle stubbornly high inflation

Since 2021, inflation has risen faster and more persistently than expected.

In 2022, inflation in advanced economies reached its highest rate since 1982. Although inflation is a broad phenomenon, affecting most economies across the world, the IMF said it has the most severe impact on lower-income groups in developing economies. In these countries, up to half of household consumption expenditure is on food, meaning that inflation can have particularly acute impacts on human health and living standards.