World Economic Outlook Update, July 2022: Gloomy and More Uncertain

World Economic Outlook, July 2022

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Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations.
Several shocks hitting a world economy already weakened by the pandemic:
- Higher-than-expected inflation worldwide—especially in the United States and major European economies—triggering tighter financial conditions.
- A worse-than-anticipated slowdown in China, reflecting COVID-19 outbreaks and lockdowns.
- Further negative spillovers from the war in Ukraine.

Baseline forecast: global growth slows from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage point lower than in the April 2022 World Economic Outlook.
Country and regional revisions:
- United States: downward revision of 1.4 percentage points driven by lower growth earlier this year, reduced household purchasing power, and tighter monetary policy.
- China: growth revised down by 1.1 percentage points due to further lockdowns and the deepening real estate crisis, with major global spillovers.
- Europe: significant downgrades reflecting spillovers from the war in Ukraine and tighter monetary policy.
Inflation outlook:
- Global inflation revised up due to food and energy prices and lingering supply-demand imbalances.
- Inflation anticipated to reach 6.6 percent in advanced economies this year—an upward revision of 0.9 percentage point.
- Inflation anticipated to reach 9.5 percent in emerging market and developing economies this year—an upward revision of 0.8 percentage point.
2023 projection: global output growing by just 2.9 percent.

Main downside risks:
- The war in Ukraine could lead to a sudden stop of European gas imports from Russia.
- Inflation could be harder to bring down than anticipated if labor markets are tighter than expected or inflation expectations unanchor.
- Tighter global financial conditions could induce debt distress in emerging market and developing economies.
- Renewed COVID-19 outbreaks and lockdowns or further escalation of the property sector crisis could further suppress Chinese growth.
- Geopolitical fragmentation could impede global trade and cooperation.
Plausible alternative scenario:
- If risks materialize and inflation rises further, global growth could decline to about 2.6 percent in 2022 and 2.0 percent in 2023.
- Such an outcome would put growth in the bottom 10 percent of outcomes since 1970.

Taming inflation should be the first priority for policymakers; tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them.
Use targeted fiscal support to cushion the impact on the most vulnerable, but such support should be offset by increased taxes or lower government spending given stretched government budgets and the need for a disinflationary overall macroeconomic policy stance.
Address financial stability risks from tighter monetary conditions through judicious use of macroprudential tools and reforms to debt resolution frameworks.
Policy responses to energy and food price shocks should focus on those most affected without distorting prices.
Raise vaccination rates as the pandemic continues to guard against future variants.
Mitigating climate change requires urgent multilateral action to limit emissions and raise investments to hasten the green transition.

World Economic Outlook Update, July 2022: Gloomy and More Uncertain

WEO Update July 2022
- WEO Update July 2022 (XLSX)
World Economic Outlook, Glommy and More Uncertain, July Update 2022
- World Economic Outlook, Glommy and More Uncertain, July Update 2022 (Markdown version)
- World Economic Outlook, Glommy and More Uncertain, July Update 2022 (PDF)