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WEO Press Briefing Annual Meetings 2022
October 11, 2022
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Jose Luis De Haro
Phone: +1 202 623-7100Email: MEDIA@IMF.org
October 11, 2022
PRESS OFFICER: Jose Luis De Haro
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Speakers:
Pierre‑Olivier Gourinchas, Director, Research Department, IMF
Petya Koeva Brooks, Deputy Director, Research Department, IMF
Daniel Leigh, Division Chief, Research Department, IMF
Moderator: Jose Luis De Haro, Communications Officer, IMF
Mr. De Haro: I want to welcome everyone to this World Economic Outlook press briefing, the first press briefing in person since the start of the pandemic. We are very happy to see a full house here with us. I also want to welcome those who are joining us today online.
I am Jose Luis De Haro, with the Communications Department here at the IMF.
I hope that, at this time, you already have access to a copy of the World Economic Outlook, released today. It is available at IMF.org.
Joining us today are Pierre‑Olivier Gourinchas, who is the Economic Counsellor and Director of the Research Department. With us today, too, Petya Koeva Brooks, who is the Deputy Director of the Research Department; and Daniel Leigh, who is a division chief also at the Research Department. Pierre‑Olivier is going to start with some opening remarks, and then we will open the floor for your questions.
I want to remind those joining us online that we will be taking questions from them, too. Also, I want to remind everybody online and here in the room that we have several languages interpretation.
With no further ado, Pierre‑Olivier, the floor is yours.
Mr. Gourinchas: Thank you, Jose. And good morning, everyone.
The global economy continues to face steep challenges, shaped by three powerful forces, the Russian invasion of Ukraine, the cost‑of‑living crisis, caused by persistent and broadening inflation pressures, and the slowdown in China.
Our global growth forecast for this year is unchanged, at 3.2 percent, while our projection for 2023 is lowered to 2.7 percent, 0.2 percentage points lower than the July forecast. The 2023 slowdown will be broad based, with countries accounting for a third of the global economy expected to contract this year or next. The three largest economies, the United States, China, and the euro area, will continue to stall. In short, the worst is yet to come; and for many people, 2023 will feel like a recession.
In the United States, the tightening of monetary and financial conditions will slow growth to 1 percent in 2023. In China, we have lowered next year’s growth forecast to 4.4 percent due to a weakening property sector and continued lockdowns. The slowdown is most pronounced in the euro area, where the energy crisis caused by the war will continue to take a heavy toll, reducing growth to 0.5 percent in 2023.
Almost everywhere, rapidly rising prices, especially for food and energy, are cautioning serious hardships for vulnerable households. Despite the slowdown, inflation pressures are proving broader and more persistent than anticipated. Global inflation is now expected to peak at 9.5 percent in the third quarter of 2022 before decelerating to 4.1 percent by 2024. Inflation is also broadening beyond food and energy. Global core inflation rose from an annualized monthly rate of 4.2 percent at the end of 2021 to 6.7 percent in July for the median country.
Downside risks remain elevated, and policy trade‑offs have become acutely challenging. Here are a few of the ones we highlight in our report. The risk of monetary, fiscal, or financial policy miscalibration has risen sharply at a time of high uncertainty and growing fragilities. Global financial conditions could deteriorate and the dollar strengthen further, should turmoil in financial markets erupt. Inflation could yet again prove more persistent, especially if labor markets remain extremely tight. Finally, the War in Ukraine is still raging, and a further escalation can exacerbate the energy crisis.
Our October World Economic Outlook report presents a risk assessment around our baseline projections, with 25 percent probability global growth next year could slow down to below 2 percent, a historically low level. We have only had that five times since 1970. If many of the risks materialize, global growth would decline to 1.1 percent, with quasi‑stagnant income per capita next year. According to our calculations, the likelihood of such an adverse scenario would be around 10 to 15 percent.
Increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability. Central banks are now laser‑focused on restoring price stability, and the pace of tightening has accelerated sharply. There are risks of both under‑ and overtightening. Undertightening would further entrench the inflation process, erode the credibility of central banks, and de‑anchor inflation expectations. As history repeatedly teaches us, this would only increase the eventual cost of bringing inflation under control. Overtightening risks pushing the global economy into an unnecessarily harsh recession. Financial markets may also struggle to adapt to an overly rapid pace of tightening. Yet the cost of these policy mistakes are not symmetric. The hard‑won credibility of central banks would be gravely undermined if they misjudge, yet again, the stubborn persistence of inflation. This would prove much more detrimental to future macroeconomic stability. Where necessary, financial policy should ensure that markets remain stable. However, central banks around the world need to keep a steady hand, with monetary policy firmly focused on taming inflation.
Formulating the appropriate fiscal response to the cost‑of‑living and energy crises has also become a serious challenge for many countries. Let me mention a few key principles.
First, fiscal policy should not work at cross‑purpose with monetary authorities’ efforts. Doing otherwise will only prolong inflation and could cause serious financial instability, as recent events reminded us.
Second, the energy crisis, especially in Europe, is not a transitory shock. The geopolitical realignment of energy supplies in the wake of the war is both broad and permanent. Winter 2022 will be challenging, but winter 2023 will likely be worse. Price signals will be essential to curb energy demand and stimulate supply. Price controls, untargeted subsidies, or export bans are fiscally costly, lead to excess demand, undersupply, misallocation, and rationing. They rarely work. Fiscal policy should, instead, aim to protect the most vulnerable through targeted and temporary transfers.
Third, fiscal policy can help economies adapt to a more volatile environment by investing in productive capacity, human capital, digitalization, green energy, and supply chain diversification. Expanding these can make economies more resilient when the next crisis comes.
Unfortunately, these important principles are not always guiding policy right now.
The strength of the dollar is also a major challenge. The dollar is now at its strongest since the early 2000s, mostly against advanced economies but also against emerging markets. So far, this rise appears mostly driven by fundamental forces, such as the tightening of monetary policy in the United States and the energy crisis. The appropriate response is to calibrate monetary policy to maintain price stability, while letting the exchange rate adjust, conserving valuable foreign exchange reserves for when financial conditions really worsen. In other words, as the global economy is headed for stormy waters, now is the time for emerging market policymakers to baton down the hatches.
Eligible countries with sound policies should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund. Countries should also aim to minimize the impact of future financial turmoil through a combination of preemptive macroprudential and capital flow measures, where appropriate, in line with our Integrated Policy Framework. Too many low‑income countries are close to or are already in debt distress. Progress toward orderly debt restructuring, through the Group of 20’s Common Framework, is urgently needed to avert a wave of sovereign debt crises. Time may soon run out.
Finally, the energy and food crisis, coupled with extreme summer temperatures, starkly remind us of what an uncontrolled climate transition would look like.
There are clouds on horizon; but progress on climate policies, debt resolution, and other targeted global issues will demonstrate that strengthened cooperation can achieve progress for all and help to overcome geoeconomic fragmentation. Thank you.
Mr. De Haro: Thank you, Pierre‑Olivier.
Before we open the floor to your questions, some ground rules. If you want to ask a question, raise your hand. Wait until I call on you, and somebody will give you the mic. Try to stick to just one question. We have a full house here today. If you have any follow‑ups, we can treat those bilaterally.
And with that said, I think we are going to start here in the front. We are going to start with Andrea Shalal, Reuters.
Questioner: Thank you. Andrea Shalala with Reuters.
I wanted to follow up on your remarks about the debt crisis.
You say that time is running out. I mean, it has been years now since the Common Framework was set up, and there has only been three cases. They have not been finished yet. What can you do here, as an institution, to put more emphasis on that and to increase the momentum? And do you see any signs that the private sector, lenders, creditors, and China, are willing to move?
Mr. Gourinchas: Well, I think you are pointing out that there is, effectively, a serious issue of debt restructuring that is needed for a number of especially low‑income countries.
The Common Framework has been put in place, as you pointed out, by the Group of 20 a number of years ago. Only three countries have approached the Common Framework. There has been progress. For a long time, not much was happening; but there has been progress recently, especially in the case of Zambia. And I think we want to point that out. And more progress is needed. The hope is that, somehow, the progress that can be made with a country like Zambia could also help to facilitate the process for other countries in the future.
There is no doubt that many countries need to engage in discussions with their creditors, need to approach them; they need to approach the Fund to start thinking about how to reduce unsustainable debt levels. And we certainly encourage countries to do that. For the low‑income countries, the Common Framework can help. For others, they can form creditor committees or approach their creditors to form creditor committees and try to make progress on this.
Mr. De Haro: Thank you, Pierre‑Olivier. We are going to stick here in the front, and then we will move around the room.
Questioner: Thank you for taking my question.
I want to ask about the climate transition. The report mentioned that climate policies might have some modest adverse impact on the near‑term economic activity and inflation. But if we delay the action, there is going to be more cost; it is going to be catastrophic.
And what is your reaction to the argument that, right now, we are facing multiple challenges; we need to address the crisis immediately; and then maybe we can worry about climate policies later on? Why the urgency? Thank you.
Mr. Gourinchas: Yes. We have in our World Economic Outlook an entire chapter on the near‑term cost of the macroeconomic transition. And an important point here is to emphasize the main message from that chapter, which is that there are some costs of doing the climate transition on the macroeconomic side. These costs are very, very modest in comparison to the cost of not doing the climate transition, everything that would happen if climate and temperatures increase in an uncontrolled fashion.
Now, sometimes we see -- with the energy crisis, for instance, we see what happens when there is a very high energy price; it is very disruptive for macroeconomic policy. And one of the things that this chapter emphasized is, the climate transition is of a different nature. It is a gradual process, and the gains are much larger if that process is started early. So, yes, we have to deal with the energy crisis right now. Yes, a number of countries are facing themselves in a situation where they need to procure more energy to produce electricity over the winter, et cetera. But the path that we should embark on, in terms of the climate transition, is something that we cannot ignore as well. And it does not require that we do all of the adjustments up front but that we engage on a credible path toward achieving our 2030 objectives.
Mr. De Haro: OK. We are going to stick with the front and then move around. Colby?
Questioner: Colby Smith with the Financial Times.
The report repeatedly mentions the need for central banks to stick with their monetary tightening plans in order to ensure that inflation does not get further out of control. But given that we have already seen a significant front‑loading, and there are lags associated with any kind of monetary policy changes, I am curious if you think it is time for central banks like the Fed to moderate the pace of rate hikes from the 75 basis‑point clip and think about something a bit more measured.
Mr. Gourinchas: Well, what we are recommending is that central banks stay the course. Now, that does not mean that they should accelerate, compared to what they have been doing -- if you think about the Fed, for instance -- but it also does not mean that they should sort of pause on the path toward monetary normalization that we have seen.
Let’s step back for a minute. We are not starting from a position where central banks were in neutral when they started increasing rates; we are starting from a position where rates were historically low because countries were coming out of the pandemic. So a lot of what we have seen so far is monetary normalization, central banks coming closer to sort of a neutral stance, which is very appropriate, given that the economy is not in the COVID‑related recession anymore and that you have these inflation pressures.
Now, you are absolutely right, that there are lags in the transmission of monetary policy, but we also have a very elevated level of inflation. And when you look at core measures of inflation, they are still pushing upwards. So it is a little bit early to think about moving to something else.
I think right now, our advice is, let’s make sure we see a decisive decline in inflation which, by the way, in our forecast, we are seeing happening, you know, inflation peaking around now or toward the end of the year, depending on the countries; and then in 2023, inflation coming down, conditional on the path for monetary policy that countries have implemented. So I wanted to explain what we mean when we say “stay the course.”
Mr. De Haro: Eric Martin, Bloomberg.
Questioner: Yes, thank you very much.
Dr. Gourinchas, I wanted to ask you about the downside scenario modeling regarding the global pandemic. In the last couple of the years, the danger of new variants has been one that has been very prominently flagged in the global outlook. It is mentioned in this outlook but fewer than about a half a dozen times. And I wanted to ask about -- you know, we are all meeting here for the first time since 2019, in person. How confident is the IMF regarding the outlook for the global economy, in light of COVID and the possibility of new variants?
You know, last year, vaccination was an issue that was flagged very strongly by the IMF last summer. How does the Fund view the distribution of vaccines and just the global public health response? And is the worst of the risk behind us? Are you concerned about, you know, this winter and things like Omicron and other virus issues cropping up?
Mr. Gourinchas: Well, thank you, Eric.
I mean, certainly, the risk of further variants or a resurgence of the pandemic is something that we mention in our report as one of the downside risks. We have not included it in our adverse scenario modeling. We have included other risks which we thought were maybe more immediate risks that the global was likely to face, but it is certainly one of the risks we highlight.
Now, it is the case that, as of now, most countries have reopened and, as we can attest today, that activities have sort of resumed on a quasi‑normal course. There are a few exceptions to that. And, of course, obviously, an important exception is China, where a different health policy path has been charted and, as a result, the country is still facing continued localized but important, sometimes, lockdowns. And that is something that is weighing down on Chinese economic activity in our baseline forecasts because of the continuation of the zero COVID policy.
Mr. De Haro: Larry Elliott, The Guardian.
Questioner: The Bank of England has been stepping into the bond market in the U.K. today to prevent disorder and disruption. How much of that is the consequence of the Chancellor’s fiscal package on the 23rd of September, which announced unfunded tax cuts and a blanket support for energy users? What are the spillover risks to the global markets? And what advice would you give to the Chancellor when he comes up with another fiscal package at the end of this month?
Mr. Gourinchas: Well, a very important question.
We have seen a lot of turbulence in the gilt market of late. Certainly, our advice to countries, as I have mentioned in my opening remarks, is that fiscal policy should be aligned with the objectives of monetary policy. And it is a little bit difficult. If you think about, central banks are trying to tighten monetary policy and if you have, at the same time, fiscal authorities that try to stimulate aggregate demand -- it is having a car with with two people in the front, and each of them has a steering wheel and is trying to steer the car in a different direction -- that is not going to work very well. So our advice has always been that fiscal policy should be cognizant of the central bank’s efforts and should try to be as close to neutral as possible.
Now, what we have seen in the U.K. market, we have seen market dysfunction related to some illiquidity in some segments. And you may want to attend Tobias Adrian, the Financial Counsellor’s press conference for the GFSR later today, where he will also talk about this from the market perspective.
So there has been a need for the Bank of England to come in and address the market dysfunction. Central banks have a financial stability mandate. They need to do that.
So the Bank of England is sort of navigating these dual objectives. On the one hand, continuing on the path toward monetary tightening that is needed to address the inflation pressures and, at the same time, addressing pockets of market dysfunction that may be arising -- in the particular case of the U.K., maybe due to the pension funds and the liability‑driven investment.
Having said all of this, it is very clear that stability can be improved, both in the financial markets and more broadly, with a fiscal package that is going to be consistent with what the Bank of England is trying to do. And from that perspective, we certainly welcome the government’s announcement of a fiscal event at the end of the month and the involvement of OBR in making the forecasts on those fiscal plans.
Mr. De Haro: I see two virtual hands on WebEx, our friends from [GK news and TAS]. Please, you can go first, and then, Anton, you can go second. Formulate your questions. We will compile them, and then our friends here can answer.
Questioner: Thank you. So I had a question on the dollar strength.
As the dollar continues to rise amid the Fed’s tightening cycle, what are the spillover effects? We see some major central banks stepped up to support their currency. So is it necessary or possible for us to have another Plaza Accord sometime down the road? And as a result of that, at this point, to what extent are you worried about overtightening? Thank you.
Mr. Gourinchas: Yes. So you are absolutely right. The strength of the dollar is certainly putting a lot of strain on a number of countries. I mean, it works through two channels. One, it is making the price of imported goods, which often are invoiced in dollars, higher. So that is increasing inflation pressures in other countries. And then it is also tightening financial conditions. A lot of corporates or governments have dollar debt, and that becomes more expensive to service as the dollar appreciates.
Now, at the same time, what is important to ask is, why is the dollar strengthening? What are the sources of the dollar strengthening? And here, at the Fund, in a sense, we are trying -- we are separating between what we call “fundamental forces” and what might be market disruptions or financial turbulence. A lot of what we are seeing right now is really on the side of fundamental forces. It is really the fact that the Federal Reserve has increased interest rates quite aggressively in 2022 so far -- is expected to do more -- compared to other countries. And it is also reflecting the energy crisis, that a lot of energy importers are impoverished by the high price of energy, and that is reflected in a weaker currency for them.
So these are fundamental forces. And in a sense, countries need to adapt to them. They need to sort of take that into account. And the appropriate response there is not to try to stem the dollar appreciation that results from this but, really, to try to have countries sort of cope with it and let the adjustment happen by targeting domestic policy.
Now, the second leg, if you have financial market disturbances, if you have a taper tantrum‑type of event, then that would justify -- under some conditions, that would justify using FX -- foreign reserves interventions or deploying other instruments to try to limit that volatility. But in many countries, we are not there yet.
Mr. De Haro: We have another virtual hand. Anton, please go ahead. Formulate your question.
Questioner: Good morning. Thank you for doing this.
As the IMF once again increased the projection for Russia’s GDP in 2022 -- it was minus 6 percent; now it is minus 3.4 percent -- so it is not so severe recession as was expected. In this regard, is it possible that, by the end of this year, the efforts of the Russian authorities would result in a very low recession, if any? Thank you.
Mr. Gourinchas: Anton, yes; you are right. We have revised upwards our numbers for Russia, but we still are projecting a decline in economic activity in 2022 and another decline in 2023. So the economy is not only lower in 2022 but it is going to keep shrinking in 2023; and, in fact, if you extend the forecast further, we are not expecting a rebound here.
But let me turn it over to my colleague, Petya Koeva Brooks, who can answer in more detail on Russia.
Ms. Koeva Brooks: Sure. There are several reasons why the contraction in the recession is milder than we had previously predicted.
First is that the energy exports have held up as a result of the diversion of those exports to nonsanctioning countries.
The second reason is that the government’s footprint in the economy is large and the employment level is actually at pre‑crisis levels.
The third reason is that the appreciation -- (audio distortion) -- is the appreciation of the ruble, which has made inflation lower than previously predicted and, of course, had had its corresponding effect on real incomes.
And last, but not least, there has been very large policy support provided by the authorities in the form of fiscal stimulus, as well as a decrease in the policy rates.
All of that being said, again, we should emphasize that the impact of the war and the associated sanctions are having a major toll on the Russian economy. And if you look at the level of output at the end of this year, in the last quarter and compare it to what was predicted prior to the war, the gap is about 9 percent, and that gap gets larger over the medium term. Thank you.
Mr. De Haro: We are going to continue here, and then we are going to move there.
Questioner: One and a half questions.
The Economist ran a big piece this week, that we are entering a completely new phase in the global economy’s growth going down, interest rates rising, central banks not able to do anything. Could you elaborate a little bit on that, if that is true?
A second partial question, at the beginning of December, they will be kicking in an embargo on Russian oil for services regarding western companies. What do you expect of that coming out? Thanks.
Mr. Gourinchas: Yes. So, very clearly, we are in a very different phase. The global economy is dealing with elevated inflation. That requires the monetary tightening that we are seeing. That is going to slow down growth, as we are projecting for next year. That is going to be an environment with higher real rates, not just nominal rates but real rates are also going to be increasing. And next year, you are going to have a combination of growth that is slowing down and inflation that is still quite high. It is coming down but it is still from high levels.
There are other forces that are -- you know, people talk about, are we seeing a change in regime? One concern, for instance, is what could happen, maybe not in the immediate future but further down the road with fragmentation risk. Are we about to see a reconfiguration of supply chains because of geoeconomic fragmentation? That is something that is certainly a worry. That is something that we would certainly not want to see. We would like to see a diversification of supply chains so that economies can become more resilient but certainly not the emergence of anything that looks like blocs. So there are a number of forces here that would push in the direction of maybe slowing down growth and higher interest rates. Some of them are more cyclical. Some of them are maybe more long term.
Now, on your question on Russian oil, I mean, it is something that -- the price cap that was announced in the six package of sanctions by the European Union is something that is part of our forecast round; but the discussions that are currently going on about the implementation of the price cap exemption, that is not something that we have in our round. And there is quite a bit of uncertainty about how energy markets are going to evolve in the coming month, with both what is happening in terms of sanctions, on one side, and what is happening with energy producers, on the other side. So there is quite a bit of uncertainty.
And that is one of the layers that we added in our adverse scenario in the WEO, where we thought about, well, what would happen if you have an increase in oil prices, for instance, that would feed into inflation, would create another supply shock. And our model‑based estimates suggest that this would shave off another half a percent of output levels next year. So this is quite significant, if you think about the impact that something like a 20 to 30 percent increase in oil prices would have on the global economy.
Mr. De Haro: As promised, we are going to go to this side of the room. The gentleman in the second row with a blue tie.
Questioner: Good morning.
As you are aware, inflation is ravaging a lot of countries, and it appears most central banks in Africa have reached their limits. And you also mentioned the fact that there is a time lag in monetary policy transmission. Would you advise central banks to deploy both conventional and unconventional methods in the fight against inflation? Thank you.
Mr. Gourinchas: Well, our advice, in general, is that central banks should first start with the traditional instruments of monetary policy. And as you want to think about nonconventional instruments, then you should think about, what is a friction that is preventing conventional monetary policy from working that would require a country or a central bank to deploy alternative ways of charting a course for monetary policy. So that is sort of the general high‑level advice.
Now, in terms of individual countries -- and for Africa, maybe I will turn it over to Daniel Leigh here, who will answer for us.
Mr. Leigh: Yes. Thank you.
So for Nigeria, in particular, we have forecasted inflation of about 19 percent for this year but then some moderation next year, down to 17 percent. And part of that does reflect the monetary policy actions, the four percentage point increase in Nigeria’s central bank, as well as the decline that we expect in oil and food prices globally.
Mr. De Haro: OK. We are going to continue there. The friend, the reporter in the third row.
Questioner: My question is about Italy. And I was wondering if you could elaborate on your estimate, especially for next year. What are the main risks you can see for the outlook of the country? And if you have any policy recommendations for the upcoming new government. Thank you.
Mr. Gourinchas: Thank you. For Italy, just let me start by saying that this is one of the countries where we had a positive revision for 2022. I mean, a number of European countries did better than we expected in our previous round of projections. Italy is one of them. Stronger tourism, strong activity, in general, and construction as well.
Now, for Italy, we are projecting a very sharp slowdown for next year. For Italy, we are projecting, actually, a negative growth rate for 2023. And in large part, this is due to energy prices and the dependence that Italy has to gas. And we are also seeing the impact of the tightening of monetary policy in the euro area and also weak external demand.
But let me turn it over to my colleague Petya, who can also answer on Italy.
Ms. Koeva Brooks: I do not have much to add, except to say that, actually, in Italy, we are expecting Italy to enter a technical recession in the coming quarters. And a big impact has come from the energy crisis and the elevated inflation and the adverse impact on real incomes. So when it comes to the risks to this outlook, they are, again, very much on the downside. And, again, they are related to an even further impact coming from energy markets.
When it comes to the advice, I think it is basically like in many other countries, to focus on providing support to the most vulnerable, as opposed to broader measures, keeping in mind the at‑risk fiscal space and making sure that debt is on a declining path in the medium term.
Mr. De Haro: We are going to go with Paula, EFE.
Questioner: Thank you. I have a couple of questions.
First of all, I would like to know more details about Spain’s forecast. We see that it is the eurozone country that is growing more; but next year, revisions are not that well. What is going to happen? And apart from this, I would like to know more details also about Latin America, which are the economies that will resist better the crisis? And, also, what is going to happen next year? Thank you.
Mr. Gourinchas: So Spain is, in some ways -- in terms of just the broad outlook, of course, there are many, many important differences. But in terms of the broad outlook, it is a little bit similar to Italy, in the sense that we had also an upward revision. And Spain did very well in 2022, with a growth of 4.3 percent that we are projecting as of now, strong tourism. And in 2023, the same forces that are weighing down on Italy are also weighing down on Spain -- so energy, of course, weak demand, and the tighter monetary policy, all of this. So the combination of these three things is weighing down.
Now, in terms of Latin America, what we have in Latin America is a little bit of heterogeneity, but we have a region that has actually fared pretty well. Also, a number of them had started tightening monetary policy well ahead of advanced economies. So if you think about countries like, you know, Brazil or others, they started tightening policy quite early already in 2021. So they were ahead of the curve a little bit there. And some of them were also propped up by high energy and commodity prices, so that buffered them in 2022.
But, again, let me turn it to Petya to provide maybe a little bit more granular details.
Ms. Koeva Brooks: Sure.
So on Spain, indeed, the pattern is the same, similar to other European countries, but the growth rates are significantly higher. So we are talking about 4.3 for this year and 1.2 for 2023. And Spain is a country where the European [new generation funds] are expected to also boost activity.
One thing, one caveat here is that the second quarter data was actually released after the cutoff for when the forecast was made. So if that forecast were done now for 2023, we would probably see even higher numbers than what we currently have.
When it comes to Latin America, we have upgraded the forecast for this year to 3.5 and downgraded modestly the forecast for 2023 to 1.7. Again, this is a region that is exposed to commodity price developments, to external demand, and to tightening financial conditions, as well as many countries depend on remittances, as well as tourism. So it is a little bit of a heterogenous picture.
Mr. De Haro: I want to take this opportunity to remind everyone that we will be hosting a series of regional press briefings over the week, so you can keep asking country‑specific questions by then.
Talking about country specifics, we have a couple of questions online about Egypt: What are your expectations for the Egyptian economy in 2023? How do you see the Egyptian central bank’s actions to reduce the inflation, in light of the economic crisis?
This question comes from Fatima Ibrahim Amman.
Mr. Gourinchas: I will turn it over to Petya also.
Ms. Koeva Brooks: Egypt, like many other countries, has been affected by the global slowdown and the tightening financial conditions. It is also a country that has experienced large capital outflows. So in that context, with the heightened inflation, the measures to hike interest rates and to tackle inflation we think are appropriate.
In terms of the growth forecasts, we have downgraded our forecast for 2023 to 4.4, and there are risks, of course, on the downside related to tightening financial conditions, as well as the broader challenges that come from the worsening external environment.
Mr. De Haro: We are going to go to our reporter there with the moustache.
Questioner: Thank you. I wanted to ask you about India and how India’s digitization program has helped its economy, in particular, the [DAK] cash transfer and other efforts that the Indian government has done. Thank you.
Mr. Gourinchas: Yes. So India has been doing fairly well in 2022 and is expected to continue growing fairly robustly in 2023. We have a growth rate at 6.8 percent for this year and the projection at 6.1 percent for next year. Now, this year, there is a downward revision, and it is mostly due to the external outlook as well as tighter financial conditions and the growth revision for the first quarter of the fiscal year that came in weaker than the previously expected.
Inflation is still above the central bank target in India. It is at 6.9 percent, we project, for this year and coming down to 5.1. So the overall stance of policy, we think that fiscal and monetary policy should probably be on a tightening side.
Let me maybe ask Daniel if he has any additional points to make.
Mr. Leigh: I have very little to add.
We do expect that inflation will come back to the inflation tolerance band of 4 percent in fiscal year 2023/2024. And additional monetary tightening is going to ensure that that happens.
Mr. De Haro: This is the last question, and it is going to go to the reporter in the back. Yeah.
Questioner: I just wanted to go back to the food price issue. Your report highlighted some concerns there, particularly about additional shocks and what that would mean.
We are seeing wheat prices moving back up. The dollar is getting stronger. As policy tightens, that is likely to continue. Maybe in just qualitative terms -- you could just tell us for emerging markets, for low‑income countries -- how bad is it going to get?
Mr. Gourinchas: Well, food prices have certainly increased substantially in the last year, and that has created a lot of hardship, especially for low‑income households, for whom the food and energy component of their basket is very important. So that is an important concern.
Of late, food prices had started to turn around and come down. There had been some positive developments -- for instance, the Black Sea grain deal that was implemented over the summer that allowed the exports of Ukrainian wheat. And some of the increase you have seen in the last few days reflects some uncertainty maybe about the continuation of that deal, given the situation in Ukraine. In a sense, as I mentioned, one of the risks that we highlight is that you could have a lot of uncertainty in food and energy markets related to the war.
Now, on this, I would like to mention that the Fund has just opened its food shock window, which allows a number of countries to access emergency financing to deal precisely with elevated food prices. And so this has just started. And we expect that a number of countries will be able to access funding through that new facility that is part of the emergency funding we have.
I also want to flag that we have -- in our World Economic Outlook, there is a whole special feature on precisely understanding the drivers of food inflation, that does a deep dive into some of the drivers going forward.
Mr. De Haro: Go ahead.
Questioner: Thank you for taking my question. Today News Africa.
I understand that you guys like to talk a lot about the war in Ukraine and how that crisis is exacerbating the food crisis around the world. But in the Horn of Africa, we are facing a major -- the worst humanitarian crisis on earth at the moment because of drought, the devastating war in Ethiopia’s Tigray region and everywhere.
I was wondering if you talk first about the Horn of Africa and the economic outlook there and what the IMF is doing to help the millions of people there who are affected.
Ukraine -- as I said, the people in Ukraine, they are white, they are in Europe. It makes perfect sense for you guys here to talk a lot about them. And if you can talk a little bit also about Africa, the debt distress, what you guys are doing to help African nations, the economic outlook on Africa, and what is being done here in Washington. Thank you.
Mr. Gourinchas: Let me address this question.
First, you are absolutely right. The current environment has interrupted the growth rebound that we had in many parts of Africa. And growth is expected to slow down in the region. And, as we have just discussed, this is creating a lot of hardship for a lot of people.
Now, the Fund is doing a lot. A year ago, we had an SDR allocation that allowed, that distributed SDRs to countries, 650 billion. There is a Resilience and Sustainability Trust that is being put together that will allow countries to access funding for climate‑related and long‑term projects which are going to be particularly relevant to deal with climate change in regions where you have droughts and problems with very low yields or extreme weather events. There is the food shock window that I just mentioned.
So there are a number of facilities that we are putting together to address some of the balance of payments imbalances that are arising in countries, because this is what the Fund does. And at the end of the day, we are here to help countries that have balance of payments imbalances. And there are a number of reasons why they might have them. Some of them might be related to food prices. Some of them might be related to climate. Some of them might be related to other types of shocks.
Let me maybe turn it over to Daniel to provide a little bit more specifics on Africa.
Mr. Leigh: Yes, thank you.
It is a region very severely affected by the war in Ukraine. The food, fuel, and fertilizer price spike is having a negative effect on agriculture and a broad part of the economy. On top of that, this is one of the parts of the world where the COVID shock is still really severe in terms of the very low vaccination rates -- 26 percent only in sub‑Saharan Africa, compared to 66 percent in the rest of the world; only 2 percent have a booster, compared to a third to a half in the rest of the world. On top of that, the global slowdown means less demand for the products of the region. And then, on top of that, the higher interest rates, low growth means that two‑thirds of the countries in the region are facing stress or debt distress. So this is why the attention here is very much on providing relief also in terms of supporting the Common Framework, to avoid the debt crisis from spreading.
Mr. De Haro: I want to thank you, Pierre‑Olivier, Petya, and Daniel, for the time. And in the name of the Research Department and the Communications Department, I also want to thank you all for attending this briefing.
I want to remind you that the next briefing for the presentation of the Global Financial Stability Report is going to be in this exact same venue at 10:30 a.m. If you have any questions or additional comments, please send those to media@imf.org. Have a good rest of your day.
