World Economic Outlook: IMF

• The World Economic Outlook Report (WEO) 2022, the International Monetary Fund's most recent edition, was recently published.
• It is a detailed report that the International Monetary Fund releases twice a year (IMF).

Major Report Highlights

• The IMF has drastically reduced its projection for global growth, moving it from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023.
• It is predicted that this year or next, the world economy will decline by more than one-third.
• Global inflation is now anticipated to reach a peak of 9.5% in late 2022.
• It is anticipated to stay high for longer than first anticipated and is only projected to drop to 4.1% by 2024.
• Core inflation is the rate of inflation after subtracting the cost of gasoline and food. Compared to food and fuel inflation, core inflation normally increases and decreases more gradually.
• On a fourth-quarter basis, it is anticipated that global core inflation, which is determined by excluding food and energy prices, will be 6.6%. This prediction reflects the pass-through of energy prices, supply chain cost pressure, and tight labour markets, particularly in advanced economies.
• The world's three major economies—the United States, the European Union, and China—will stay stagnant, and rising price pressures—by squeezing real incomes and weakening macroeconomic stability—remain the most urgent threat to the prosperity of the present and the future.
• The hardest policy task at hand may be high inflation and stalled GDP.
• This is due to the fact that policies intended to control inflation frequently lead growth to decline more, whilst those intended to promote growth frequently cause inflation to rise.
• Geopolitical risks: The Russian invasion of Ukraine, a cost-of-living problem brought on by persistent and expanding inflation pressures, and China's slowdown have all had a significant impact on the world economy.

India's image

The situation for India seems improved.

• India's GDP growth rate is higher, and the country's inflation rate is lower.
• These metrics, however, conceal the fact that, in absolute terms, India is just emerging from the recession it experienced in 2020, that it was home to the greatest number of people (5.6 crore, according to the World Bank) who were pushed below the poverty line in 2020, or that millions are unemployed.
• India's growth in 2022–23 will be 5.8 percent if the RBI lowers its April growth rate prediction (7.2 percent) by the same amount as the IMF (1.4 percent points).

At least four factors pose a threat to India:

• Domestic inflation will increase as the price of crude oil and fertiliser rise.
• Exports will suffer from the global recession, which will hinder domestic growth and widen the trade deficit.
• A high dollar would put pressure on the value of the rupee, lowering our foreign exchange reserves and limiting our ability to import products when times are tight.
• Due to low demand from the majority of Indians, the government may be forced to spend more money on basic aid in the form of subsidies for food and fertiliser. The state of the government's finances will worsen as a result.

What suggestions has the IMF made?

Fighting Inflation:

• The top priorities should be to combat inflation, normalise central bank balance sheets, and quickly and persistently boost real policy rates above their neutral level in order to restrain inflation and inflation expectations.

Coordination of Monetary and Fiscal Policy:

• In economies with excess aggregate demand and hot labour markets, fiscal policy must work in tandem with monetary policy to reduce demand.
• Any advantages from future growth could be offset by a resurgent cost-of-living squeeze in the absence of price stability.
• The goals and procedures for achieving them must be communicated clearly by central banks while acting decisively.

Keeping the Vulnerable Safe During the Change:

• Policymakers will need to safeguard the most defenceless elements of society from the effects of rising costs as the cost of living continues to grow.

Climate Change Policy:

• Climate change will eventually have disastrous effects on health and economic consequences around the world if immediate corrective action is not taken.
• Global temperature goals are not in line with current global targets. By the end of the decade, emissions must be reduced by at least 25% in order to meet these targets.
• The ongoing energy crisis has also highlighted the advantages for energy security that nations might gain from gradually shifting away from fossil fuels and toward renewable and low-carbon energy sources.

About International Monetary Fund (IMF)

• In the wake of the 1930s Great Depression, it was founded in 1944.
• Because it was decided to establish both organisations at a summit in Bretton Woods, New York, the IMF and the World Bank are also known as the Bretton Woods twins.
• Its 190 member nations, which represent a nearly global membership, are in charge of it and are responsible to them.
• India joined the group in December 1945.
• Goal: To maintain the stability of the international monetary system, which facilitates trade between nations and their inhabitants through the use of exchange rates and international payments.
• All macroeconomic and financial sector issues that affect global stability were included to its 2012 mandate.
• Finance: The majority of the IMF's funding comes from the quotas that new members must pay as capital subscriptions.
• Each IMF member is given a quota based, in large part, on its relative standing in the global economy.
• When nations encounter financial difficulties, they can borrow from this pool.

Publications:

• World Economic Outlook
• Global Financial Stability Report
• Fiscal Monitor
• Global Policy Agenda.

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