The only good news first: The surprisingly great desire to travel by people to and in Italy means that the economy of the Mediterranean country is growing faster this year than expected in the spring. The International Monetary Fund (IMF) is increasing its forecast for 2022 from 2.3 percent to three percent. The economists justify this apart from the flourishing tourism with stronger industrial activities in Italy.
Another figure for a single country in the IMF's revised World Economic Outlook will be anything but positive in the western world: despite the sanctions, the Russian economy is also doing better than expected in April.
Instead of a minus of 8.5 percent, the economists are now assuming a minus of six percent for 2022. "The business with oil and other export goods has proven to be more stable than expected," says the current report. The consumer demand of the Russians is still quite good, also thanks to a stable domestic banking sector and labor market.
If you look at these figures, the development in the rest of the world is far more negative - mainly in the large economies of the West. For them, the experts at the IMF paint a bleak picture for the coming months. "Unfortunately, many of the fears that we only described in April have now materialized," says chief analyst Pierre-Olivier Gourinchas.
Inflation in the United States and Europe is higher, and new lockdowns in China are causing the economy in the giant empire to weaken more. In addition, high energy prices, dwindling consumer confidence and the continuing problems with the supply of raw materials and individual parts are slowing down growth, especially in the large economies of Europe.
In short: From the perspective of the IMF, the world is again on the verge of a recession - just two years after the last one. As a consequence, the multi-country organization from Washington, whose main task includes stabilizing the global monetary system, has successively revised the growth forecasts downwards not only for 2022 but also for 2023.
The biggest loser among the major economies is Germany. It was already announced last week that the IMF economists only expect Germany to grow by 0.8 percent in the coming year instead of 2.7 percent, as they still expected the German economy to be capable of in their April outlook.
It is now clear that no other major economic nation has been hit harder by the recent developments in the crisis than Germany. The IMF economists revised their estimates of the gross domestic product (GDP) for Germany by 1.9 percentage points.
They made the second largest correction in the forecast for growth in the United States: instead of an increase of 2.3 percent, growth there is only to go up by one percent next year.
And that only if there are no further risks to the economy. These include the IMF: a sudden complete halt to the supply of gas from Russia to Europe, persistently high inflation, not least driven by the general shortage of workers in many industrialized countries, and the interest rate policy of the central banks, which is mainly increasing the debt problems in emerging countries.
The economists see further risks in further corona outbreaks in China, rising food prices that could lead to social unrest, and a new nationalism that restricts free trade between countries and continents.
"If some of these risks materialise, such as the gas flow to Europe drying up, then inflation will rise and growth will continue to slow," Gourinchas said. In this scenario, growth in the United States and the euro zone would approach zero, which in turn would have negative effects on the rest of the world. The IMF still assumes that the global economy will grow by 3.2 percent this year and 2.9 percent next year.
The IMF sees the central task of politics in the fight against inflation. Most recently, the central banks in the major industrial nations have raised interest rates more quickly than expected in the spring, thereby withdrawing support from the economy in the form of cheap loans.
"More restrictive monetary policy costs economic growth, but any delay would only exacerbate the hardship," says Gourinchas. He urges central banks to keep interest rates on hold until they get inflation under control again.
In this context, the IMF's worries primarily apply to the emerging countries, which are already highly indebted and do not have the financial leeway that the United States or Germany have. The probability of default in many of these countries has already increased from around 20 percent to 60 percent over the past ten years.
Higher interest payments, limited access to credit, a stronger dollar and slowing economic growth further increased their default risk. If the IMF has its way, close global coordination is crucial in this phase, for example when it comes to energy supply, food security and preventing a debt crisis.
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