Transcript of April 2022 World Economic Outlook Press Briefing
IMF News, April 19, 2022
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- Published: April 19, 2022
Global growth outlook and revisions
- Global growth projection revised downwards to 3.6 percent in both 2022 and 2023.
- Compared to January forecast, the European Union growth outlook revised downward by 1.1 percentage points (one of the largest contributors to the overall downward revision).
- The medium‑term outlook is revised downwards for all groups, except commodity exporters (who benefit from the surge in energy and food prices).
- Aggregate output for advanced economies will take longer to recover to its prepandemic trend.
- The divergence between advanced economies and emerging markets and developing economies that opened up in 2021 is expected to persist, suggesting some permanent scarring from the pandemic.
- In this round, 86 percent of the global economy revised down.
Inflation, monetary policy, and exchange rates
- Inflation has become a clear and present danger; in the United States and some European countries it "has reached its highest level in more than 40 years" in the context of tight labor markets.
- Risk that inflation expectations drift away from central bank inflation targets (noted central bank inflation target of 2 percent).
- Many central banks, such as the Federal Reserve, had already moved toward tightening monetary policy before the war; the war amplifies inflationary pressures and increases urgency of tightening.
- Currency realignments observed as a result of divergent monetary policy stances: U.S. dollar appreciation and depreciation of currencies in countries maintaining accommodative stances (example: Japanese yen).
- Currency depreciations for energy and food importers and countries close to the war epicenter can raise imported inflation and exacerbate financial fragilities.
Supply shocks, commodities, and trade linkages
- The war in Ukraine considered an additional major supply shock that propagates widely through commodity markets, trade, and financial linkages.
- Russia is a major supplier of oil, gas, and metals; Russia and Ukraine together are major suppliers of wheat and corn. Reduced supplies have driven prices up sharply.
- Commodity importers most affected: Europe, the Caucasus and Central Asia, the Middle East, north Africa, and sub‑Saharan Africa.
- Surge in food and fuel prices will hurt lower‑income households globally, including in the Americas and the rest of Asia.
Regional impacts and country specifics
- Displacement of about 5 million Ukrainian people to neighboring countries‑‑especially Poland, Romania, Moldova, and Hungary‑‑adds economic pressure in the region.
- Russia: projected output growth negative 8.5 percent in 2022; this represents an 11.5 percentage point downward revision. An adverse scenario (tighter sanctions affecting energy exports) could produce a further decline of 17 percent in the level of output by year‑end 2023 for Russia.
- Euro area: baseline growth projection 2.8 percent for 2022 and 2.3 percent for 2023; a tightening of sanctions and energy disruptions in an adverse scenario could imply about a 3 percent decline in the level of activity by year‑end 2023.
- United Kingdom: projected to grow by about 3.7 percent this year (a downward revision of about 1); elevated inflation pressures and monetary tightening weigh on activity.
- India: significant downgrade in growth estimates of 0.8 percentage points for 2022; reasons include negative terms‑of‑trade shock from higher oil prices and softer external demand.
- Egypt: 2022 number upgraded by 0.3 (reflecting strong performance in the first half of the fiscal year); 2023 forecast downgraded to 5 percent. Impacts include capital outflows, interest rate increases, currency depreciation, and drawdowns of reserves; wheat import dependence is a key channel.
- Mexico: expected to grow by about 2 percent in 2022, a downgrade of about 0.8.
- Brazil: baseline growth around 0.8 percent noted in remarks; an upward revision of 0.5 for this year driven by positive terms‑of‑trade shock from higher commodity prices and Brazil’s status as an oil exporter.
- Nigeria: projected growth 3.4 percent for this year and 3.1 percent for next year; revisions of +0.7 percentage point for this year and +0.4 percentage point for next year driven by higher oil prices (terms‑of‑trade) and strong non‑oil momentum.
- Sub‑Saharan Africa: region hit by pandemic, climate change, and war‑induced commodity price increases; of the 35 low‑income countries in the region, close to 20 are in debt distress or at high risk of debt distress.
Fiscal space, debt, and global financial stability
- Fiscal space was already eroded in many countries by the pandemic; withdrawal of extraordinary fiscal support projected to continue.
- Surge in commodity prices and rising global interest rates will further reduce fiscal space, especially for oil‑ and food‑importing emerging markets and developing economies.
- Financial conditions tightened immediately after the invasion for emerging markets and developing countries; so far mostly orderly but fragility risks remain (possibility of sharp tightening of global financial conditions and capital outflows).
- Debt relief and Common Framework: Common Framework intended to bring official creditors together, but process has been slow and issues persist around transparency and comparable treatment of creditors; need for faster and more effective sovereign debt restructuring frameworks.
Risks, adverse scenarios, and uncertainty
- Uncertainty around projections is considerable and "well beyond the usual range."
- Downside risks highlighted include:
- Tightening of sanctions that extends to Russian energy exports (adverse scenario assessed in report).
- A continued spread of the virus that could produce more lethal variants and new lockdowns.
- Risk of a more permanent fragmentation of the world economy into geopolitical blocs with distinct technology standards, cross‑border payment systems, and reserve currencies; such fragmentation would cause long‑run efficiency losses and increased volatility.
- Specific quantified adverse scenario: tightening of sanctions plus decline in consumer confidence and financial market volatility estimated to lead to a more severe downturn equivalent to about 2 percent of the level of output globally (noted in adverse scenario box).
Social impacts, food insecurity, and policy responses
- Increases in food and fuel prices may significantly increase the prospect of social unrest in poorer countries; food and energy can represent up to 40 percent of the consumption basket for lower‑income households.
- IMF recommendations and roles:
- Central banks should adjust policies decisively to ensure medium‑ and long‑term inflation expectations remain anchored; clear communication and forward guidance essential.
- Fiscal consolidation will be needed in several economies, but governments should provide well‑targeted support for vulnerable populations; support should be embedded in medium‑term frameworks with credible paths for stabilizing public debt.
- Urgent and coordinated international action on the food crisis urged, in partnership with the World Bank, World Food Programme, and other organizations; provide funding and food supplies to vulnerable populations.
- IMF stands ready to consider requests for financial assistance on an emergency basis or within existing programs and in coordination with other agencies.
- Ensure global financial safety net operates effectively: provide adequate liquidity support for short‑term refinancing difficulties and deliver timely, comprehensive sovereign debt restructuring where needed.
Structural and long‑run priorities
- The most immediate priority identified is to end the war.
- On climate: close the gap between stated ambitions and policy actions; an international carbon price floor differentiated by country income levels proposed as a way to coordinate national efforts.
- Secure equitable worldwide access to the full complement of COVID‑19 tools (monitoring, tests, vaccines, treatments) to contain the virus and address global health priorities.
- Multilateral cooperation emphasized as essential to advance these goals and to preserve the multilateral framework underpinning global economic stability and poverty reduction.
Transcript of April 2022 World Economic Outlook Press Briefing, IMF Communications Department, April 19, 2022.