IMF Update—almost a trillion dollars too optimistic 

Global Perspective

July 28, 2022

Executive summary

The International Monetary Fund (IMF) revised its 2022 global economic growth outlook downward from 3.6% to 3.2%, and the 2023 growth figure was downgraded to 2.9%. However, these revised estimates still expect global economic output to be over $100 trillion, above consensus estimates, including ours. We expect further downgrades to the IMF outlook during the rest of the year to the tune of another one percentage point, or $1 trillion less in nominal economic activity.

What happened

The IMF downgraded the 2022 and 2023 global economic outlook

After these downward revisions, the global economy is now expected to grow 3.2% in 2022 and 2.9% in 2023. The IMF downgraded the U.S. economy's outlook significantly by 1.4% percent since its April update. In contrast, Europe saw some benign downgrades as Italy's outlook improved with tourism-related sectors recovering post-pandemic. In contrast, China’s economic outlook was downgraded to 3.3% for 2022, noticeably below the Chinese government's official target of 5.5%. Russia's economic contraction is expected to be around 6%, revised up by 2.5%. Brazil also received an upgraded outlook, with external demand for agriculture and commodities improving noticeably. 

Our take

The recent downgrade is not enough to reflect the realities

Before the Russian invasion of Ukraine in early 2022, the world economy was running on all cylinders and expected to grow by 4.4%. The bottlenecks in supply chains were slowly improving, pandemic-related social mobility restraints were being removed, and demand for goods and especially for services was robust. The invasion of Ukraine altered the course of the global economy. Investors faced a wider range of possible outcomes, such as Russia escalating aggression beyond Ukraine's borders, while full-scale sanctions on Russian energy put the world economy at risk of another recession.

Higher energy prices led to higher inflation, and higher inflation led to much tighter financial conditions than expected. China's zero-Covid policy led to full lockdowns of major cities for months, and restrictive social mobility measures curtailed consumer demand. 

In our view, the IMF’s growth downgrade is still too optimistic. We expect further downgrades when factoring in the faster-than-anticipated slowdown in the world's top two economies, the U.S. and China, and Europe facing a difficult winter with Russian energy supplies at risk.

Overall, the global economy will likely lose 2% of real economic growth from earlier estimates, achieving close to 2.4%. As the world economy is around $100 trillion, each percentage point loss of growth equates to a $1 trillion loss in economic output. With a 3.2% growth estimate, the IMF is almost a trillion dollars too optimistic for the world's 2022 economic output.

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