## WEO Press Briefing Annual Meetings 2022

_IMF News, October 11, 2022_

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## Bibliographic details
- Published: October 11, 2022

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### Global outlook and headline projections
- Global growth forecast for this year is unchanged, at 3.2 percent.
- Projection for 2023 is lowered to 2.7 percent, 0.2 percentage points lower than the July forecast.
- Countries accounting for a third of the global economy are expected to contract this year or next.
- The three largest economies — the United States, China, and the euro area — will continue to stall.
- 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.
- 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.

### Major forces shaping the outlook
- Three powerful forces: the Russian invasion of Ukraine; the cost‑of‑living crisis from persistent and broadening inflation pressures; and the slowdown in China.
- Specific country projections highlighted:
  - United States: growth slowing to 1 percent in 2023 due to tightening monetary and financial conditions.
  - China: 2023 growth forecast lowered to 4.4 percent because of a weakening property sector and continued lockdowns.
  - Euro area: growth reduced to 0.5 percent in 2023, with the energy crisis imposing a heavy toll.

### Inflation, monetary policy, and trade‑offs
- Central banks are “laser‑focused” on restoring price stability; pace of tightening has accelerated sharply.
- Risks of policy miscalibration:
  - Undertightening could entrench inflation, erode credibility of central banks, and increase the eventual cost of bringing inflation under control.
  - Overtightening risks pushing the global economy into an unnecessarily harsh recession and creating financial market adjustment problems.
- Guidance:
  - Central banks should “stay the course” — continue the path toward monetary normalization rather than pausing prematurely.
  - Monetary policy should be firmly focused on taming inflation while financial policy helps ensure market stability where necessary.

### Fiscal policy principles and the energy crisis
- Fiscal policy should not work at cross‑purpose with monetary authorities’ efforts.
- The energy crisis (especially in Europe) reflects a broad and permanent geopolitical realignment of energy supplies; winter 2023 likely worse than winter 2022.
- Price signals are essential to curb energy demand and stimulate supply; warnings against price controls, untargeted subsidies, or export bans because they are fiscally costly and lead to misallocation and rationing.
- Fiscal policy should aim to protect the most vulnerable through targeted and temporary transfers.
- Fiscal policy can strengthen resilience by investing in productive capacity, human capital, digitalization, green energy, and supply chain diversification.

### Downside risks, adverse scenarios, and probabilities
- Downside risks remain elevated (monetary, fiscal, and financial miscalibration; further escalation of the war in Ukraine; persistent inflation if labor markets remain tight).
- Risk assessment around baseline: with 25 percent probability global growth next year could slow to below 2 percent (a historically low level seen five times since 1970).
- Adverse scenario: if many risks materialize, global growth would decline to 1.1 percent, with quasi‑stagnant income per capita next year.
- Likelihood of such an adverse scenario estimated around 10 to 15 percent.

### Exchange rates, dollar strength, and spillovers
- The dollar is at its strongest since the early 2000s, driven mostly by fundamental forces (U.S. monetary tightening and the energy crisis).
- Effects of dollar strength:
  - Raises prices of imported goods invoiced in dollars, increasing inflation pressures elsewhere.
  - Tightens financial conditions for corporates and governments with dollar debt.
- Policy response recommended:
  - Calibrate monetary policy to maintain price stability while allowing exchange rates to adjust.
  - Conserve foreign exchange reserves for when financial conditions worsen.
  - Use FX interventions or other measures only if financial market disturbances justify them.

### Debt distress and the Common Framework
- Too many low‑income countries are close to or already in debt distress.
- Progress toward orderly debt restructuring through the Group of 20’s Common Framework is urgently needed — “time may soon run out.”
- Only three countries have approached the Common Framework; progress has been slow but some recent advances (e.g., Zambia) could help facilitate future processes.
- Eligible countries with sound policies should consider improving liquidity buffers and requesting access to precautionary instruments from the Fund.
- Preemptive macroprudential and capital flow measures recommended where appropriate, in line with the Integrated Policy Framework.

### IMF risk management instruments and facilities
- The Fund has opened a food shock window to allow countries to access emergency financing to address elevated food prices.
- Reference to SDR allocation (650 billion) and the upcoming Resilience and Sustainability Trust to support climate‑related and long‑term projects.

### Regional and country highlights
- United States: growth slowed to 1 percent in 2023 forecast due to monetary tightening.
- China: 2023 growth forecast at 4.4 percent, pressured by property sector weakness and lockdowns tied to zero COVID policy.
- Euro area: projected growth of 0.5 percent in 2023; many countries in the region experienced stronger‑than‑expected 2022 outcomes but face sharp slowdowns.
- Russia:
  - IMF revised 2022 contraction from minus 6 percent to minus 3.4 percent.
  - Reasons for milder contraction: energy exports diverted to nonsanctioning countries; large government footprint and employment at pre‑crisis levels; ruble appreciation lowering inflation; large policy support including fiscal stimulus and policy rate decreases.
  - But output at end‑2022 is about 9 percent below pre‑war expectations, with gaps widening over the medium term.
- Italy:
  - Positive revision for 2022, but a very sharp slowdown expected for 2023, with a technical recession likely driven by energy exposure and tightening monetary policy.
  - Advice: focus support on the most vulnerable, preserve fiscal space and ensure debt declines on a medium‑term path.
- Spain:
  - Growth projection for 2022 at 4.3 percent and 1.2 percent for 2023; strong tourism and potential boost from European recovery funds.
  - Note that second quarter data released after forecast cutoff could raise 2023 numbers.
- Latin America:
  - Upgraded forecast for 2022 to 3.5; modest downgrade for 2023 to 1.7.
  - Heterogeneous region; some countries benefited from early monetary tightening and commodity price strength in 2022.
- India:
  - Growth of 6.8 percent for this year and projection of 6.1 percent for next year.
  - Inflation projected at 6.9 percent for this year and coming down to 5.1 percent.
  - Expectation that inflation will return to the tolerance band of 4 percent in fiscal year 2023/2024 with additional monetary tightening.
- Egypt:
  - Forecast downgraded for 2023 to 4.4 percent.
  - Country faced large capital outflows and heightened inflation; rate hikes viewed as appropriate.
- Sub‑Saharan Africa and the Horn of Africa:
  - Region severely affected by the war in Ukraine through food, fuel, and fertilizer price spikes.
  - COVID remains a severe shock: vaccination rate of 26 percent in sub‑Saharan Africa versus 66 percent in the rest of the world; booster coverage about 2 percent.
  - Two‑thirds of countries in the region are facing stress or debt distress.
  - IMF tools (SDRs, Resilience and Sustainability Trust, food shock window) and support for the Common Framework are emphasized.

### Food and energy shocks, humanitarian concerns
- Food prices spiked in the last year, creating substantial hardship for low‑income households.
- Black Sea grain deal temporarily eased pressures; recent wheat price rises reflect uncertainty about continuation of the deal.
- IMF’s new food shock window provides emergency financing to address elevated food prices.
- Special feature in the World Economic Outlook examines drivers of food inflation.

### Climate transition
- WEO contains a chapter on the near‑term macroeconomic cost of the climate transition.
- Main message: near‑term macroeconomic costs of the transition are modest compared with the much larger costs of failing to limit uncontrolled climate change.
- Climate transition is gradual and yields are larger if started early; credible paths toward 2030 objectives recommended.
- Climate policy progress, debt resolution, and targeted global cooperation can help overcome geoeconomic fragmentation.

*Transcript of WEO press briefing, October 11, 2022 — IMF Communications Department, WEO Press Briefing Annual Meetings 2022*

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## References

- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm)
- [Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)
- [Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2022/10/12/tr101122-weo-transcript_