IMF Cuts Global Growth Forecasts, Warns High Inflation Threatens Recession.

The International Monetary Fund cut global growth forecasts again on Tuesday, warning that downside risks from high inflation and the Ukraine war were materializing and could push the world economy to the brink of recession if left unchecked.

Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April, the IMF said in an update of its World Economic Outlook. It added that world GDP actually contracted in the second quarter due to downturns in China and Russia.

The Fund cut its 2023 growth forecast to 2.9% from the April estimate of 3.6%, citing the impact of tighter monetary policy.

World growth had rebounded in 2021 to 6.1% after the COVID-19 pandemic crushed global output in 2020 with a 3.1% contraction.

'The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,' IMF Chief Economist Pierre-Olivier Gourinchas said in a statement.

The Fund said its latest forecasts were 'extraordinarily uncertain' and subject to downside risks from Russia's war in Ukraine spiking energy and food prices higher. This would exacerbate inflation and embed longer-term inflationary expectations that would prompt further monetary policy tightening.

Under a 'plausible' alternative scenario that includes a complete cut-off of Russian gas supplies to Europe by year-end and a further 30% drop in Russian oil exports, the IMF said global growth would slow to 2.6% in 2022 and 2% in 2023, with growth virtually zero in Europe and the United States next year.

Global growth has fallen below 2% only five times since 1970, the IMF said, including the 2020 COVID-19 recession.

The IMF said it now expects the 2022 inflation rate in advanced economies to reach 6.6%, up from 5.7% in the April forecasts, adding that it would remain elevated for longer than previously anticipated. Inflation in emerging market and developing countries is now expected to reach 9.5% in 2022, up from 8.7% in April.

'Inflation at current levels represents a clear risk for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers,' Gourinchas said.

Monetary policy tightening will 'bite' next year...