3rd May 2022
Hugues Chevalier, Economist
Last week, the IMF published its spring global outlook for 2022, down 0.8 percentage of point from January’s outlook, to just 3.6% for 2022. This sharp downward revision is justified by the war in Ukraine, by the sanctions against Russia and health confinements in China. The IMF points out that the war in Ukraine is expected to cause further disruption to supply chains that have barely recovered from the two-year health crisis. These new disruptions would primarily affect food products, especially wheat because 30% of the world production is exported from Ukraine and Russia, and energy prices. Europe is likely to be the region most affected by this conflict, particularly in terms inflation, which is expected to reach 12.6% in 2022 (5.3% in the Euro zone), and growth, which is expected to fall sharply to only 2.8% (Euro zone), down 1.1 percentage points compared to January 2022. In comparison, the IMF is only revising US GDP downwards by 0.3 percentage point for this year. With energy and food prices soaring, central banks around the world have begun to tighten monetary conditions with interest rate hikes. But the situation is difficult and complex for monetary authorities. Indeed, if they raise rates too quickly, the risk is that they will stifle the economic recovery in Western countries and provoke a flight of capital from emerging countries to industrial countries and, possibly, a new financial crisis in the emerging. Indeed, over the last 10 years, the public debt of emerging countries has doubled to 60% of their GDP. And 25% of this debt is held by banks in developing countries, which are exposed to losses if public finances in these countries continue to deteriorate. The IMF’s forecasts are therefore not good and involve a clear increase in risks for the global economy.