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‘Edge of a global recession’: IMF slashes world economic forecast again

By Michelle Toh, CNN Business

The global economy is already in trouble, yet risks keep piling up.

In a report released Tuesday, the International Monetary Fund once again lowered its world economic forecast as it predicted major slowdowns in the three biggest economies: the United States, China and Europe.

Those downturns, combined with the ongoing war in Ukraine, inflation surging faster than expected, and tighter monetary policy around the world have continued to slam the already fragile global economy, it said.

The IMF now expects the world economy to grow just 3.2% this year, down from 6.1% in 2021.

Next year is thought to be even worse: just 2.9%, only slightly above the 2.5% growth level that the IMF has typically considered a global recession.

But that forecast assumes everything stays as is. More dangers are popping up, including Russia potentially shutting off the flow of gas to Europe. That would send inflation even higher, and global growth this year down to about 2.6%, just a hair away from the hot zone, according to the IMF.

That scenario, the IMF warned, could prompt an official recession next year, causing global growth to tumble further to just 2%. That level of anemic growth has happened just five times since 1970, the IMF said.

The IMF had already downgraded its global forecast in April, likening the fallout from Russia’s invasion of Ukraine to that of an “earthquake.” At that point, it had predicted about 3.6% growth in both 2022 and 2023.

Now, “the outlook has darkened significantly,” Pierre-Olivier Gourinchas, the IMF’s director of research, wrote in a blog post Tuesday. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”

The world’s top three economies are all facing stalled activity.

In the United States, consumers have found themselves with less purchasing power as prices rise — leading to lower-than-expected consumer spending, the IMF noted.

In China, Covid-19 lockdowns have continued to hamper the economy, triggering a slowdown that “has been worse than anticipated,” the group added. The IMF has lowered its expectations for China’s GDP growth this year, from 4.4% to 3.3%.

That’s well below the government’s official target of about 5.5%, and would represent “the slowest [rate] in more than four decades, excluding the pandemic,” according to Gourinchas.

In Europe, the cost of Russia’s invasion of Ukraine has been higher than anticipated, with the spike in energy prices, “weaker consumer confidence, and slower momentum in manufacturing resulting from persistent supply chain disruptions,” the IMF said.

Businesses are already beginning to brace for the worst. On Tuesday, GM said it was preparing for an economic downturn, pulling back on expenses and new headcount.

— CNN Business’ Julia Horowitz contributed this report

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