## Foreword

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### Global outlook and key projections
- Global growth projected to remain unchanged in 2022 at 3.2 percent and to slow to 2.7 percent in 2023—0.2 percentage points lower than the July forecast.
- There is a 25 percent probability that global growth could fall below 2 percent in 2023.
- More than a third of the global economy will contract this year or next.
- The three largest economies—the United States, the European Union, and China—will continue to stall.

### Major drivers of current weakness
- Russian invasion of Ukraine:
  - Severe energy crisis in Europe sharply increasing costs of living and hampering economic activity.
  - Gas prices in Europe have increased more than four-fold since 2021.
  - Russian deliveries cut to less than 20 percent of their 2021 levels, raising the prospect of energy shortages over the next winter and beyond.
  - Conflict has pushed up food prices on world markets, causing serious hardship for low-income households worldwide and especially in low-income countries.
- Persistent and broadening inflation pressures:
  - Triggered a rapid and synchronized tightening of monetary conditions and a powerful appreciation of the US dollar against most other currencies.
  - Global inflation expected to peak in late 2022 but to remain elevated for longer than previously expected, decreasing to 4.1 percent by 2024.
- China-specific weaknesses:
  - Frequent lockdowns under zero COVID policy have taken a toll, especially in the second quarter of 2022.
  - The property sector, representing about one-fifth of economic activity in China, is rapidly weakening, weighing heavily on global trade and activity.

### Inflation, monetary policy, and risks
- Central banks globally are focused on restoring price stability; the pace of tightening has accelerated sharply.
- Risks:
  - Under-tightening: would entrench inflation, erode central bank credibility, and de-anchor inflation expectations, increasing the eventual cost of control.
  - Over-tightening: risks pushing the global economy into an unnecessarily harsh recession; more likely if central banks act uncoordinatedly.
- Financial markets may struggle with an overly rapid pace of tightening.
- Recommendation: central banks need to keep a steady hand with monetary policy firmly focused on taming inflation; where necessary, financial policy should ensure market stability.

### Fiscal policy principles and recommendations
- Rebuild fiscal buffers where the pandemic is receding; fiscal space is essential for dealing with crises.
- Fiscal policy should not work at cross-purposes with monetary authorities’ efforts to quell inflation.
- The energy crisis, especially in Europe, is not transitory; plan and coordinate for prolonged challenges, noting that Winter 2022 will be challenging for Europe, but Winter 2023 will likely be worse.
- Price signals are essential to curb demand and stimulate supply:
  - Avoid price controls, untargeted subsidies, or export bans; they are fiscally costly and lead to excess demand, undersupply, misallocation, rationing, and black-market premiums.
  - Fiscal policy should protect the most vulnerable through targeted and temporary transfers.
  - If aggregate fiscal support is unavoidable, embed it in a credible medium-term fiscal framework.
- Fiscal policy can strengthen resilience by investing in productive capacity: human capital, digitalization, green energy, and supply chain diversification.
- Warning: risk of outsized, poorly targeted, and broadly stimulative fiscal packages in many countries is not negligible.

### Emerging market and low-income country challenges
- Sharp appreciation of the US dollar adds to domestic price pressures and the cost-of-living crisis; the dollar is now at its highest level since the early 2000s.
- Capital flows have not recovered; many low-income and developing economies remain in debt distress.
- Policy guidance:
  - Calibrate monetary policy to maintain price stability while letting exchange rates adjust.
  - Conserve foreign exchange reserves for when financial conditions worsen.
  - Eligible countries with sound policies should urgently consider improving liquidity buffers by requesting access to precautionary instruments from the Fund.
  - Minimize future financial turmoil impact through preemptive macroprudential and capital flow measures, where appropriate, in line with the Integrated Policy Framework.
- Urgent need for progress toward orderly debt restructurings through the Group of Twenty’s Common Framework for the most affected countries; time may soon be running out.

### Climate, multilateralism, and long-term stability
- The energy and food crises, coupled with extreme temperatures, illustrate what an uncontrolled climate transition would look like.
- Climate policies may have modest adverse implications for activity and inflation in the near term, but these pale compared with catastrophic costs of inaction.
- Costs rise sharply the more the green transition is delayed.
- A timely and credible transition helps macroeconomic stability.
- Progress on climate policies, debt resolution, and targeted multilateral issues would demonstrate that focused multilateralism can make progress and help overcome geo-economic fragmentation pressures.

*Foreword — International Monetary Fund | October 2022*

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_Source: https://www.imf.org/-/media/files/publications/weo/2022/october/english/foreword.pdf_