The International Monetary Fund (IMF) projects that global economic growth will decline nearly 1% this year, revising its World Economic Outlook downward for 86% of its 190 member countries.
The drop from 4.4% to 3.6% is accompanied by an increase in expected inflation, caused mainly by Russia’s invasion of Ukraine. This will also lay the groundwork for a difficult 2023 according to Mohamed El-Erian, President of Queens’ College, Cambridge and Professor of Practice at the Wharton School of the University of Pennsylvania. The war-induced disruption of corn, gas, metals, and wheat supply has triggered worry of a global food crisis, particularly in vulnerable populations and countries.
The IMF’s 2023 projection indicates a .2% drop, from 3.8% to 3.6%, which won’t offset 2022 losses. “It means that the prevailing growth models are not up to the task of pulling economies through unanticipated negative shocks,” El-Erian said in The Guardian.
Reliance on artificial growth boosters and failure to invest in sources of sustained growth are to blame for the dim outlook, he said. Additionally, with increased restrictions, it’s become harder for national economies to leverage international trade and foreign direct investment for domestic growth. Countries are also facing tighter policy restraints, exposing the real economy to financial market volatility, according to the IMF report.
“These developments coincide with a period of low productivity growth in many countries, which is a function of past and persistent failures to invest in the drivers of genuine growth, including physical infrastructure and human capital,” El-Erian said.