The International Monetary Fund will cut its global economic growth outlook “substantially” in its next update, as finance chiefs grapple with a shrinking list of options to address the worsening risks.
Surging food and energy prices, slowing capital flows to emerging markets, the ongoing pandemic and a slowdown in China make it “much more challenging” for policymakers, Ceyla Pazarbasioglu, the IMF’s director for strategy, policy and review, said at a Sunday panel in Bali, Indonesia. “It’s shock after shock after shock which are really hitting the global economy.”
She spoke after the Group of 20 finance ministers and central bank governors ended their meeting on Saturday without reaching a communique, underlining the difficulty in coordinating a global response to surging inflation and recessionary fears.
The IMF already downgraded its outlook for the global expansion this year to 3.6%, from 4.4% before the war in Ukraine, in its April report. In a review due this month, “we will downgrade our forecast substantially,” Pazarbasioglu said.
Central bankers around the world are finding it tough to find the right response to price increases that are driven by supply issues.
“The path to a soft landing is narrowing; we think it is still a feasible path but certainly not a very easy one,” said Hyun Song Shin, head of research at the Bank for International Settlements, at the same panel. “Where central banks take monetary policy in a rapid and decisive manner and have a front-loaded response to inflation, that is more conducive to a soft landing.”
Bank Indonesia, as the host nation for the G-20 meeting, has become an outlier in keeping its policy rate at a record low. Governor Perry Warjiyo has defended that view, saying that tightening too soon could risk plunging the country, fresh out of a pandemic-driven recession, into stagflation instead.
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