Global economic growth prospects are confronting a unique mix of headwinds,
including from Russia’s invasion of Ukraine, interest rate increases to
contain inflation, and lingering pandemic effects such as China’s lockdowns
and disruptions in supply chains.
In turn, our latest
World Economic Outlook, released last month, lowered our global growth forecast for next year to
2.7 percent, and we expect countries accounting for more than one third of
global output to contract during part of this year or next. Moreover, as we
discuss in our latest report prepared for the Group of Twenty, recent
high-frequency indicators confirm that the outlook is gloomier.
As the Chart of the Week shows, there has been a steady worsening in recent
months for purchasing manager indices that are tracking a range of G20
economies. These survey-based measures gauge the momentum of manufacturing
and services activity.
As the chart illustrates, readings for a growing share of G20 countries
have fallen from expansionary territory earlier this year to levels that
signal contraction. That is true for both advanced and emerging market
economies, underscoring the slowdown’s global nature.
While gross domestic product releases for the third quarter surprised on
the upside in some major economies, October PMI releases point to weakness
in the fourth quarter, particularly in Europe. In China, intermittent
pandemic lockdowns and the struggling real estate sector are contributing
to a slowdown that can be seen not only in PMI data but also in investment,
industrial production, and retail sales. This will inevitably have a
significant impact on other economies
due to China’s large role in trade.
Despite growing evidence of a global slowdown, policymakers should continue
to prioritize containing inflation, which is contributing to a
cost-of-living crisis, hurting low-income and vulnerable groups the most.
As our G20 report emphasizes, the macroeconomic policy environment is
However, continued fiscal and monetary tightening is likely needed in many
countries to bring down inflation and address debt vulnerabilities—and we
do expect further tightening in many G20 economies in the months ahead.
Nonetheless, these actions will continue to weigh on economic activity,
especially in interest-sensitive sectors such as housing.
The challenges that the global economy is facing are immense and weakening
economic indicators point to further challenges ahead. However, with
careful policy action and joint multilateral efforts, the world can move
toward stronger and more inclusive growth.