this post from Picvalue Corp takes you to step by step through the process of WEO forecast
Gloomy outlook, rising uncertainty
The global economy will initially recover in 2021, but the situation will be even bleaker in 2022, and related risks will begin to emerge.
this comprehensive post by the WEO forecast experts at Picvalue Corp
Gloomy outlook, rising uncertainty
The global economy will initially recover in 2021, but the situation will be even bleaker in 2022, and related risks will begin to emerge. Global output contracted in the second quarter due to economic downturns in China and Russia, while U.S. consumer spending fell short of expectations. The world economy, which was weakened by the epidemic, suffered several shocks: global inflation exceeded expectations (especially in the major economies of the United States and Europe), resulting in tightening financing conditions; affected by the new crown epidemic and epidemic prevention measures, China's economic growth slowed down more than expected; in addition , the Ukraine war also brought more negative spillover effects.
Baseline forecasts suggest growth will slow to 3.2% in 2022 from 6.1% last year, down 0.4 percentage points from the April 2022 WEO forecast. A slowdown in U.S. economic growth earlier this year, combined with lower household purchasing power and tighter monetary policy, has cut U.S. growth forecasts by 1.4 percentage points. Further lockdowns in China and a deepening housing crisis led to a 1.1 percentage point cut in growth forecasts, with significant global spillovers. Europe is affected by the spillover effects of the Ukraine war, coupled with the tightening of monetary policy, resulting in a sharp downward revision of growth forecasts for European countries. Higher food and energy prices and persistent supply-demand imbalances have led to upward revisions to global inflation forecasts (although demand declines have moderated). Inflation in advanced economies is expected to hit 6.6 percent this year, while inflation in emerging markets and developing countries is projected to hit 9.5 percent, up 0.9 and 0.8 percentage points, respectively. Monetary policy to reduce inflation is expected to have a negative impact in 2023, with global output rising by just 2.9%.
Downside risks to the economic outlook dominate. Ukraine war could lead to a sudden halt in European gas imports from Russia; lowering inflation could be harder than expected if labor markets are tighter than expected, or if inflation expectations are not anchored; tighter global financing conditions could trigger emerging markets and developing Chinese economies China’s debt crisis; the resurgence of the new crown epidemic and more anti-epidemic lockdowns and further intensification of the crisis in the real estate sector may deepen the restraint on China’s economic growth; geopolitical divisions may hinder global trade and cooperation. A possible alternative scenario is multiple risks, with inflation rising further and global growth falling to around 2.6% in 2022 and 2.0% in 2023. This would be the worst two-year performance of the economy in the worst 10% since 1970.
As rising prices continue to squeeze living standards around the world, controlling inflation should be a top priority for policymakers. Tightening monetary policy inevitably has real economic costs, but delays will only increase costs. Targeted fiscal support can help cushion the impact on the most vulnerable, but as the pandemic stretches government budgets and requires an overall macroeconomic policy stance that reduces inflation, these will need to be offset by higher taxes or lower government spending. Tighter monetary conditions will also affect financial stability, require careful use of macroprudential tools, and make debt resolution framework reforms more necessary. Policies addressing the specific impacts of energy and food prices should focus on those most affected and avoid price distortions. As the outbreak continues, vaccination rates must be increased to protect against future mutant strains. Finally, to mitigate climate change, there is still an urgent need for multilateral action to limit emissions while increasing investment to accelerate the green transition.