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Global Economic Overview

Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic and reflects significant slowdowns for the largest economies: a US GDP contraction in the first half of 2022, a euro area contraction in the second half of 2022, and prolonged COVID-19 outbreaks and lockdowns in China with a growing property sector crisis. About a third of the world economy faces two consecutive quarters of negative growth. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging market and developing economies.

Global Growth Outlook Projections (in %):

Projections

Country/Group	2021	2022	2023
World Output	6.0	3.2	2.7
Advanced Economies	5.2	2.4	1.1
United States	5.7	1.6	1.0
Euro Area	5.2	3.1	0.5
Japan	1.7	1.7	1.6
United Kingdom	7.4	3.6	0.3
Canada	4.5	3.3	1.5
Other Advanced Economies	5.3	2.8	2.3
Emerging Markets and Developing Economies	6.6	3.7	3.7
Emerging and Developing Asia	7.2	4.4	4.9
China	8.1	3.2	4.4
India*	8.7	6.8	6.1
ASEAN-5	3.4	5.3	4.9
Emerging and Developing Europe	6.8	0.0	0.6
Russia	4.7	-3.4	-2.3
Latin America and the Caribbean	6.9	3.5	1.7
Middle East and Central Asia	4.5	5.0	3.6
Sub-Saharan Africa	4.7	3.6	3.7
Emerging Market and Middle-Income Economies	6.8	3.6	3.6
Low-Income Developing Countries	4.1	4.8	4.9

*For India, data and forecasts are presented on a fiscal year basis. For the October 2022 WEO Update,

Indias growth projections are 6.8% in 2022 and 6.1% in 2023.

Source: IMF, World Economic Outlook, October 2022.

Advanced Economies Group:

For advanced economies, growth is projected to slow from 5.2 percent in 2021 to 2.4 percent in 2022 and 1.1 percent in 2023. With the slowdown gathering strength, growth is revised down compared with the July WEO Update (by 0.1 percentage point for 2022 and 0.3 percentage point for 2023). The projected slowdown and the downgrades are concentrated in the US and European economies.

Growth in the United States is projected to decline from 5.7 percent in 2021 to 1.6 percent in 2022 and 1.0 percent in 2023, with no growth in 2022 on a fourth-quarter-over-fourth-quarter basis. Growth in 2022 has been revised down by 0.7 percentage point since July, reflecting the unexpected real GDP contraction in the second quarter. Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending, especially spending on residential investment.

In the euro area, the growth slowdown is less pronounced than that in the United States in 2022 but is expected to deepen in 2023. Projected growth is 3.1 percent in 2022 and 0.5 percent in 2023. There is an upward revision of 0.5 percentage point since July for 2022, on account of a stronger-than-projected second-quarter outturn in most euro area economies, and a downward revision of 0.7 percentage point for 2023. In Italy and Spain, a recovery in tourism-related services and industrial production in the first half of 2022 has contributed to projected growth of 3.2 percent and 4.3 percent, respectively, in 2022. However, growth in both countries is set to slow sharply in 2023, with Italy experiencing negative annual growth. Projected growth in 2022 is lower in France, at 2.5 percent, and in Germany, at 1.5 percent, and the slowdown in 2023 is especially sharp for Germany, with negative annual growth. Weak 2023 growth across Europe reflects spillover effects from the war in Ukraine, with especially sharp downward revisions for economies most exposed to the Russian gas supply cuts, and tighter financial conditions, with the European Central Bank having ended net asset purchases and rapidly raising policy rates by 50 basis points in July 2022 and 75 basis points in September 2022. At the same time, a number of factors have contributed to a less rapid near-term slowdown than in the United States, including policy interest rates at still lower levels and, in a number of European economies, NextGenerationEU funds supporting economic activity.

Emerging Market and Developing Economies Group:

Growth in the emerging market and developing economy group is expected to decline to 3.7 percent in 2022 and remain there in 2023, in contrast to the deepening slowdown in advanced economies. The forecast for 2022 is modestly upgraded from the July forecast, reflecting a smaller-than-expected contraction in emerging and developing Europe.

In emerging and developing Asia, growth is projected to decline from 7.2 percent in 2021 to 4.4 percent in 2022 before rising to 4.9 percent in 2023, with a 0.2 percentage point and 0.1 percentage point downgrade since July for 2022 and 2023, respectively. The revisions reflect the downgrade for growth in China, to 3.2 percent in 2022 (the lowest growth in more than four decades, excluding the initial COVID-19 crisis in 2020). COVID-19 outbreaks and lockdowns in multiple localities, as well as the worsening property market crisis, have held back economic activity in China, although growth is expected to rise to 4.4 percent in 2023. The outlook for India is for growth of 6.8 percent in 2022 a 0.6 percentage point downgrade since the July forecast, reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand and 6.1 percent in 2023, with no change since July. For the Association of Southeast Asian Nations (ASEAN)-5 economies, projected growth in 2023 is revised down to reflect mainly less favourable external conditions, with slower growth in major trading partners such as China, the euro area, and the US; the decline in household purchasing power from higher food and energy prices; and in most cases, more rapid monetary policy tightening to bring inflation back to target.

In emerging and developing Europe, growth is projected at 0.0 percent in 2022 and 0.6 percent in 2023, with a 1.4 percentage point upgrade for 2022 and a 0.3 percentage point downgrade for 2023, compared with the July forecast. The economic weakness reflects -3.4 percent and -2.3 percent projected growth in Russia in 2022 and 2023 and a forecast contraction of 35.0 percent in Ukraine in 2022, as a result of the war in Ukraine and international sanctions aimed at pressuring Russia to end hostilities. The contraction in Russias economy is less severe than earlier projected, reflecting resilience in crude oil exports and in domestic demand with greater fiscal and monetary policy support and a restoration of confidence in the financial system.

In sub-Saharan Africa, the growth outlook is slightly weaker than predicted in July, with a decline from 4.7 percent in 2021 to 3.6 percent and 3.7 percent in 2022 and 2023, respectively - downward revisions of 0.2 percentage point and 0.3 percentage point, respectively. This weaker outlook reflects lower trading partner growth, tighter financial and monetary conditions, and a negative shift in the commodity terms of trade.

Policies with Immediate Impact:

1) Fighting Inflation: The priority must be to tackle inflation, normalize central bank balance sheets, and raise real policy rates above their neutral level fast enough and for long enough to keep inflation and inflation expectations under control. Fiscal policy also needs to support monetary policy in softening demand in economies with excess aggregate demand and overheating labour markets. Without price stability, any gains from future growth are at risk of being eaten up by a renewed cost-of-living squeeze. Yet taming inflation will come at a cost: unemployment will rise and wages will decline as monetary policy tightens.

2) Monetary and fiscal policy coordination: Following a broad loosening of public purse strings during the pandemic, tightening is expected in 2022 and 2023. However, in a number of countries, fiscal policy is expected to loosen, potentially boosting aggregate demand and offsetting monetary policys disinflationary effect. Fiscal consolidation can also send a powerful signal that policymakers are aligned in their fight against inflation. Countries will need to make difficult choices in the composition of spending, given the need to keep a tight fiscal stance. For example, the cost-of-living crisis may put pressure on governments to approve above-inflation public sector pay deals. Without fiscal contraction elsewhere, and with tight supply, unfunded government spending increases or tax cuts will only push inflation up further and make monetary policymakers jobs harder.

3) Protecting the vulnerable during the adjustment: As the cost of living continues to rise, policymakers will need to protect the most vulnerable members of society from the impact of higher prices. Poorer households often spend relatively more than others on food, heating, and fuel: categories that have seen particularly steep price increases. In countries lacking well-developed safety nets, governments should look to extend any already active programs. In general, broad price caps or food and energy subsidies should be avoided, as they increase demand while diminishing or removing supply incentives. This can result in rationing and an unbridled underground economy. Moreover, such programs are often expensive and regressive, funnelling public cash to those who consume the most rather than to those with the greatest need.

4) Warding off pandemic risks: COVID-19 continues to have long-lasting effects on the global economy. Even though many of the new variants are less deadly than early ones, they continue to have considerable economic impact. Although strict lockdowns are increasingly rare, the disease continues to cause economic disruption, as businesses may struggle to adapt to unpredictable absences when workers or their family members fall sick. As the virus persists and continues to evolve, ensuring equitable access to a comprehensive toolkit of vaccines, tests, and treatments worldwide is the best strategy not only to save lives, but also to reduce a key source of uncertainty holding back the global recovery. Regarding vaccinations, the primary focus should be on fully vaccinating the most clinically vulnerable populations. Ongoing investments in research, disease surveillance, and health systems will also be needed to keep a broad set of tools updated as the virus evolves. The impact of the pandemic is perhaps most keenly felt in China, where intermittent lockdowns in parts of the country have continued to affect economic activity. Temporary disruptions to domestic logistics and supply chains during the largest outbreaks, besides being a drag on private consumption, have hit the countrys manufacturers, adding to existing pressures on global supply chains. The recurring outbreaks stress the importance of paving the way for a safe exit from Chinas zero-COVID strategy, including by adding to the countrys successful vaccination campaign, especially for the under vaccinated elderly.