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IMF warns of effects of China slowdown on global economy

The International Monetary Fund (IMF) warned this Tuesday (26) of the risks that the world economy could take if China continues braking in the face of the constant outbreaks of Covid-19 and its consequent blockages, which profoundly affect the global supply chain.

The IMF released the report on World Economic Prospects, reviewing the April projections and estimating that the Asian giant will grow 3.3% this year, 1.1 percentage points below the previously announced. In 2023 it is expected to grow 4.6%, half a percentage point less than previously announced.

This is the lowest growth of the Asian giant in more than four decades, excluding the growth that the country registered at the beginning of the coronavirus pandemic in 2020.

On a global level, the entity also reduced the growth forecasts to 3.2% this year and 2.9% next year (0.4 and 0.7 less, respectively) and did not rule out that estimates will worsen again due to high global instability.

“In China, new confinements and the deepening of the housing crisis caused growth to be revised downwards by 1.1 percentage points, with important contagion effects at a global level”, warns the IMF in the report.

The document highlights that Shanghai, “an important hub of the global supply chain”, had a “hard lockdown” in April that forced the shutdown of economic activity across the city for eight weeks. .

“The slowdown in China has global consequences: blockages and disruptions in the global supply chain and lower domestic expenses are reducing demand for goods and services from China’s trading partners”, warns the entity.

The IMF draws two perspectives for the future, a more positive one, which includes fiscal measures and a rethinking of the “Covid Zero” policy by the authorities, and a more negative one, which would come as a consequence of the emergence of outbreaks contagious that trigger widespread lockdowns.

IMF warns that “small shock” could push the US into recession

The IMF also warned that, although it does not foresee a recession of the US economy this year or next, a “small shock could be enough” to generate this scenario.

The US margin to avoid recession is “very narrow”, he said. Pierre-Olivier Gourinchas, Director of the IMF’s Research Department, in the presentation of the Perspectives Review the global ones. According to the entity, the American economy will grow 2.3% this year and 1% next year.

Gourinchas admitted that there are several indicators that point to a slowdown in the world’s leading economy and, while underlining that the job market is strong, with an unemployment rate of just 3.6%, he warned that tight monetary policy – which is already being applied to combat inflation – could lead to further economic cooling and worse employment data.

IMF cuts global growth forecast to 3.2% this year and 2.9% in 2023

Global growth forecasts were reduced to 3.2% this year and 2.9% in

, in a scenario of high instability in which it is not ruled out a worsening of these estimates.

Previous forecasts were reduced by four and seven tenths of a percentage point, respectively. The risks that the Fund had pointed out in April have already materialized and are affecting the global economy. These are high inflation, a longer and sharper-than-expected slowdown of the Chinese economy and the negative effects of the war in Ukraine.

But the IMF also calculates a much more adverse scenario. , in which he imagines what could happen if prices do not stabilize, if there is a sudden stop in the supply of Russian gas to Europe, if tighter financial conditions choke developing economies and if geopolitics prevent global trade from developing

In this case, and if these risks materialize, the Fund estimates an even lower global growth of 2.6% this year and only 2% in 2023, a number that has only been recorded on five occasions since 1981, always during major crises – those of 1973, 1981 and 1982, 2008 and 2020.

In this report, the IMF once again asked world governments to make reducing inflation their “top priority”.

In these revised forecasts, the IMF shows that Europe’s major economies are suffering more than expected from the spillover effects of Russia’s invasion of Ukraine.

Latin America

Latin America is one of the few regions to see an improvement in the Fund’s forecast for this year, which now stands at 3% , (half a percentage point more than the previous calculation), although for 2023 the estimate is lower, of an increase of 2% (half a percentage point less).

The two main Latin American economies, Brazil and Mexico, have better forecasts for 2022, although they have a worse estimate for 2023 .

According to the IMF, the Brazilian economy will grow 1.7% this year (nine tenths of a percentage point more), and 1.1% next year (three tenths of a point less) , while Mexico’s growth will be 2.4% this year (four tenths of a point higher) and 1.2% next year (1.3 points lower).

As for inflation, the IMF is also pessimistic, believing that in advanced economies as a whole it will be 6.3% this year (up from 4.8% projected in April). For the euro zone, the estimated percentage is 7.3%, 2.9 points above the previous forecast.

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