WEO Update July 2022 Press Briefing Transcript
IMF News, July 26, 2022
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- Published: July 26, 2022
Global outlook and headline forecasts
- Global output contracted in the second quarter of this year.
- Baseline forecast: global growth slows from last year's 6.1 percent to 3.2 percent this year, and 2.9 percent next year.
- Downgrades of 0.4 and 0.7 percentage points from April.
- Global trade expected growth: 4.1 percent in 2022, and 3.2 percent in 2023.
Major economy projections and country highlights
- United States:
- Growth forecast: 2.3 percent this year, and 1.0 percent next year.
- Labor market: unemployment rate cited at 3.6 percent.
- Q4 2023 quarterly growth example: 0.6 percent (used to illustrate narrow path to avoid recession).
- China:
- Growth forecast: 3.3 percent this year (described as the slowest in more than four decades, excluding the pandemic).
- Slowdown attributed to COVID-19 outbreaks, lockdowns, and a deepening real estate crisis.
- Euro area:
- Growth forecast: 2.6 percent this year, and 1.2 percent in 2023.
- Downgrades reflect spillovers from the war in Ukraine and tighter monetary policy.
- Russia:
- 2022 growth forecast revised to -6 percent (up from a prior -8.5 percent projection).
- Revision attributed to resilient domestic demand, effective financial stabilization measures, fiscal support, and strong export revenues in the first half of the year.
- 2023 outlook revised down by -1.2 percentage point.
- ASEAN-5:
- Aggregate expansion: 5.3 percent this year, and 5.1 percent in 2023.
- Noted downgrade for 2023 described by IMF as "marked down 2023 by 8 percentage points."
- Inflation in 2022 for ASEAN-5: 3 to 7 percent depending on the country.
- Egypt:
- Growth forecast: 5.9 percent in 2022, and 4.8 percent in 2023.
- Inflation forecast: 8.7 in 2022, and 14 percent in 2023.
- Authorities have requested IMF assistance; IMF team held productive discussions toward reaching a staff level agreement.
- Canada:
- 2022 growth: about 3.4 percent; 2023: about 1.8 percent.
- IMF cut 2023 forecast for Canada by one percentage point in this Update.
- Japan:
- Noted sizable downgrades: cuts by 0.7 and 0.6 percentage points for 2022 and 2023 respectively (relative to prior forecasts).
- Japan’s 2021 output growth was 1.7 percent; economy still below pre-pandemic output levels.
- Argentina:
- Inflation: year-on-year in June cited at 64 percent.
- IMF emphasizes priority of bringing back inflation and price dynamics to stable levels.
- Sub‑Saharan Africa (aggregate):
- Growth: 3.8 percent in 2022 and 4 percent in 2023 on average.
- Divergence: oil exporters boosted by higher oil prices; oil importers face headwinds from higher fertilizer and wheat costs.
Inflation and monetary policy
- Global inflation revised up despite slowing activity:
- Inflation this year anticipated to reach 6.6 percent in advanced economies, and 9.5 percent in emerging market and developing economies.
- Inflation is projected to remain elevated longer and has broadened in many economies.
- Central banks:
- Major central banks in advanced economies are withdrawing monetary support faster than expected in April.
- Many emerging market and developing economies began raising interest rates last year.
- Result: a historically unprecedented synchronized monetary tightening across countries.
- IMF guidance:
- "Bringing it back to Central Bank targets should be the top priority for policy makers."
- Central Banks that have started tightening should stay the course until inflation is tamed.
- Tighter monetary policy will have real economic costs, but delaying it will only exacerbate hardship.
Downside risks and alternative scenario
- Key downside risks listed:
- A sudden stop of European gas flows from Russia.
- Inflation remaining stubborn if labor markets remain overly tight, inflation expectations de-anchor, or inflation proves more costly than expected.
- Tighter global financial conditions inducing a surge in debt distress in emerging market and developing economies.
- Plausible alternative scenario (some risks materialize, including full shutdown of Russian gas flows to Europe):
- Global growth decelerates further to about 2.6 percent this year, and 2.0 percent next year.
- In this scenario both the United States and the Euro area experience near-zero growth next year, with negative knock-on effects for the rest of the world.
- Historical note: global growth has only been below 2.0 percent five times since 1970 (1973, 1981-82, 2009, and 2020).
Financial stability, debt, and spillovers to EMDEs
- Tighter financial conditions (higher borrowing costs, diminished credit flows, stronger dollar, weaker growth) will push more countries into debt distress.
- Share of emerging markets and developing economies in or at high risk of debt distress has more than tripled from a decade ago.
- Debt resolution:
- Mechanisms remain slow and unpredictable, hampered by difficulties obtaining coordinated agreements from diverse creditors.
- Recent progress in implementing the Group of 20's Common Framework is anchoring, but further improvements are urgently needed.
- IMF encourages proactive debt restructuring to restore sustainability and unlock IMF support.
Policy recommendations and priorities
- Monetary policy:
- Priority: bring inflation back to central bank targets; central banks that have started tightening should continue until inflation is under control.
- Fiscal policy:
- Target fiscal support to cushion the vulnerable; set targeted support with higher taxes or lower government spending to ensure fiscal policy does not undermine disinflationary objectives.
- Recognize constrained fiscal space in many countries.
- Financial sector:
- Use macro‑prudential tools to safeguard financial stability.
- Where flexible exchange rates are insufficient, be ready to implement foreign exchange interventions or capital flow management measures in a crisis.
- Trade and food/energy policy:
- Domestic measures to address high energy and food prices should focus on those most affected, without distorting prices.
- Governments should refrain from hoarding food and energy and unwind trade barriers (e.g., food export bans) that drive world prices higher.
- Pandemic response:
- Step up vaccination campaigns, resolve vaccine distribution bottlenecks, and ensure equitable access to treatment.
- Climate and energy transition:
- Prompt multilateral action needed to limit emissions and raise investments to accelerate the Green transition.
- Temporary measures to use fossil fuels in energy shortfalls should be limited and not increase emissions overall.
- Accelerate credible and comprehensive climate policies to increase Green energy supply; Green energy independence can be compatible with national security objectives.
SDRs and IMF resources
- IMF issued a record $650 billion in special drawing rights (SDRs) about a year prior (August of last year).
- Calls from some U.S. policymakers for a fresh issuance of SDRs have been noted; IMF is exploring options and SDRs are part of a menu of instruments, but they are not a panacea.
- Editor's note included in transcript: "There has been no discussion at the IMF of a further SDR allocation," an IMF spokesperson said. "Despite recent developments and high global uncertainty, it would be premature to conclude that the long-term global need for reserves has changed significantly."
Transcript: WEO Update July 2022 Press Briefing Transcript, July 26, 2022; IMF Communications Department.