Global growth momentum takes a hit as economic crisis unfolds

Uncertainty seems to be the watchword these days as the world economy continues to flounder. Hemmed in by a resurgent pandemic and a bloody conflict in Ukraine, the global economy is, at best, hanging on by a thread.

Rising inflation, supply chain disruption, volatile energy markets and diminishing investor confidence have threatened to tip another economic crisis onto our plates. Governments and banks across the globe are already doing their best to curb rising inflation. In lieu of the developing situation, international organizations and think tanks have started slashing growth forecasts for the present fiscal.

The International Monetary Fund (IMF) was one of the many to reduce their numbers, reporting in its World Economic Outlook (WEO) that global output was expected to slow this year to 3.6 percent. If one recalls correctly, the figures stood at 4.4 per cent this January.

The IMF also reduced its earlier forecast of 9 per cent growth for India in FY23 to 8.2 per cent. In the same WEO report, the IMF also forecasted that India’s economy would grow by 6.9 per cent in 2023-24. This figures are much more generous than the Reserve Bank of India’s estimates. The central bank predicts a 7.2 per cent growth this financial year; down from the 7.8 per cent it had projected earlier.

As per the WEO report, net oil importers are expected to be affected the most. “Notable downgrades to the 2022 forecast include Japan (0.9 percentage point) and India (0.8 percentage point), reflecting in part weaker domestic demand – as higher oil prices are expected to weigh on private consumption and investment – and a drag from lower net exports,” according to the report.

The war in Ukraine has had a major influence on global economy, and with no end in sight anytime soon, inflation rates are expected to surge further and slow growth. According to experts, the unfolding events are a direct consequence of the war in Europe. And it could not have come at a worse moment.

IMF’s chief economist, Pierre-Olivier Gourinchas, summed it up very nicely saying, “This crisis unfolds even as the global economy has not yet fully recovered from the pandemic. Even before the war, inflation in many countries had been rising due to supply-demand imbalances and policy support during the pandemic, prompting a tightening of monetary policy. The latest lockdowns in China could cause new bottlenecks in global supply chains.”

Countries like Sri Lanka, Egypt, Tunisia and Peru are already grappling with rising food and energy prices. If the shocks from the spillover of the Ukrainian conflict are not properly contained, a broader debt debacle is a real possibility.

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