World Economic Outlook, October 2022: Countering the Cost-of-Living Crisis
World Economic Outlook, October 2022
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- Published: October 11, 2022
Inflation and uncertainty
- Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades.
- Key drivers weighing on the outlook: the cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic.
- Growth projections:
- Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.
- This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.
- Inflation projections:
- Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022.
- Inflation is forecast to decline to 6.5 percent in 2023 and to 4.1 percent by 2024.
- Policy guidance:
- Monetary policy should stay the course to restore price stability.
- Fiscal policy should aim to alleviate cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy.
- Structural reforms can support the fight against inflation by improving productivity and easing supply constraints.
- Multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.
Global prospects and policies
- The slowdown in global economic activity is broad-based and sharper-than-expected, with inflation higher than seen in decades.
- The economic outlook depends on:
- Successful calibration of monetary and fiscal policies.
- The course of the war in Ukraine.
- Growth prospects in China.
- Risks identified as unusually large:
- Monetary policy could miscalculate the right stance to reduce inflation.
- Diverging policy paths in the largest economies could exacerbate the US dollar’s appreciation.
- Tightening global financing could trigger emerging market debt distress.
- A worsening of China’s property sector crisis could undermine growth.
- Policy priorities for policymakers:
- Focus on restoring price stability.
- Alleviate cost-of-living pressures.
- Pursue multilateral cooperation to fast-track the green energy transition and prevent fragmentation.
Wage Dynamics Post–COVID-19 and wage-price spiral risks
- Context: Inflation has reached a 40-year high in some economies.
- Observations:
- Although wage growth has generally stayed below inflation so far, some observers warn of potential wage-price spirals where prices and wages feed off each other.
- Analytical findings:
- Similar historical episodes were not followed by wage-price spirals on average.
- Analysis highlights that more backward-looking expectations require stronger and more frontloaded monetary tightening to reduce risks of inflation de-anchoring.
- Risks of a sustained wage-price spiral appear limited since underlying inflation shocks come from outside the labor market and monetary policy is tightening aggressively.
Near-term macroeconomic impact of decarbonization policies
- Framing:
- Decades of procrastination have transformed what could have been a smooth transition into a more challenging one.
- By the end of the decade, the global economy needs to emit 25 percent less greenhouse gases than in 2022 to have a fighting chance to reach the goals set in Paris in 2015 and avert catastrophic climate disruptions.
- Approach:
- The chapter uses a new model developed at the IMF (GMMET) to analyze the near-term macroeconomic impact of feasible decarbonization policies and potential challenges for monetary policy.
World Economic Outlook Report, October 2022: Countering the Cost-of-Living Crisis
Content in this bundle
- Chapter 1 Annex
- Chapter 2
- Chapter 2 Annex
- Chapter 3
- Chapter 3 Annex
- WEO Chapter 2 Oct 2022
- Dataset overview: WEO Chapter 3 Oct. 2022
- October 2022 WEO Chapter 1 — Dataset overview
- Executive Summary
- Foreword
- Statistical Appendix
- Table a
- Table b
- Annex Table 1.1.1.