World Economic Outlook Report: IMF

In News

• Recently, the International Monetary Fund has released its latest edition of World Economic Outlook Report (WEO) 2022.
  • It is a comprehensive report published twice a year by the International Monetary Fund (IMF).

Major Highlights of the Report 

• The IMF has sharply cut the forecast for global growth from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023.
  • It stated that more than a third of the global economy will contract this year or next.
• Inflation: Global inflation is now expected to peak at 9.5 per cent in late 2022. 
  • It is expected to remain elevated for longer than previously imagined and is likely to decrease to 4.1 per cent only by 2024. 
• Core inflation: that is the inflation rate when prices of food and fuel are taken away. Core inflation typically rises and falls more gradually than inflation in food and fuel.
  • Global core inflation, measured by excluding food and energy prices, is expected to be 6.6 per cent on a fourth-quarter-over-fourth-quarter basis, reflecting the pass-through of energy prices, supply chain cost pressure, and tight labour markets, especially in advanced economies. 
• The three largest economies: the United States, the European Union, and China will continue to stall and that increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability.
• High inflation and stalling growth is possibly the toughest policy challenge available.
  • That’s because policy measures to contain inflation typically drag down growth even further while measures taken to boost growth tend to spike inflation.
• Geopolitical risks: The global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China. 
• India’s picture:
  • India appears better placed.
  • India’s GDP growth rate is better and inflation is not as high.
    • But these metrics hide that in absolute terms, India is barely out of the contraction suffered in 2020, that it was home to the most people (5.6 crore, according to World Bank) pushed below abject poverty in 2020 or that crores are unemployed.
  • If the RBI cuts its growth rate forecast in April (7.2 per cent) by the same measure as the IMF has (1.4 percent points), India’s growth in 2022-23 will be 5.8 per cent.
  • The threat to India comes from at least four sources:
    • Higher crude oil and fertiliser prices will spike domestic inflation
    • Global slowdown will hurt exports, dragging down domestic growth and worsening the trade deficit
    • A strong dollar will put pressure on the rupee’s exchange rate, which will likely result in reducing our forex reserves and reducing our capacity to import goods when the going gets tougher.
    • Low demand among most Indians, the government might be forced to spend more towards providing basic relief in the form of food and fertiliser subsidies. This will worsen the government’s financial health.

Source: IE