The ‘Dark’ World Economy and Crisis in China

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In this latest report, the IMF cut world economic growth in 2022 to 3.2% or 0.4% lower than the previous projection in April 2022.

According to the IMF, the recovery of the world economy after the Covid-19 pandemic is tentative. Currently the risk is getting worse and making economic development more bleak.

“Several shocks hit the world economy, which had previously been weakened by the pandemic,” the IMF study said. The shocks in question include the war between Russia and Ukraine which has sent world food and energy prices high. This condition has also made the world’s central banks raise their benchmark interest rates quite sharply.

In its report, the IMF mentions the condition of lockdown Covid and the real estate crisis in China have hindered economic activity. Meanwhile in the US, the central bank, namely the Fed, is very aggressive in raising the benchmark interest rate and making the economy slow down.

There is a strong warning from the IMF that the risk of the economy going further downwards is open. If this happens, the global economy could enter its worst condition in the last half century.

The biggest risk to the world economy today is the impact of the wars between Russia and Ukraine. The food crisis due to war can trigger hunger in the world.

“If these shocks are severe enough, there will be a combination of recession accompanied by very high inflation (stagflation),” the report said.

Therefore, world economic growth could slow down to just 2% in 2023. This is the lowest world economic growth since 1970.

According to the IMF, currently the main priority for policy makers is to restrain rising prices. Because the condition of rising prices can suppress people’s purchasing power.

According to the IMF, a very aggressive increase in the benchmark interest rate of the world’s main central banks will further put pressure on the economy.

“Tighter monetary policy will inevitably incur real economic costs, but delaying it will only exacerbate the predicament,” Gourinchas said.

These conditions of high food prices and inflation will increase suffering for the poorest countries that are least able to withstand shocks, where food makes up a larger part of the family budget.

The IMF stated that the US economic growth this year will only be 2.3%, while China will only grow 3.3% this year. China’s economic growth is the lowest in the last four decades. This is due to the worsening crisis in China’s property sector.

“The slowdown in China has global consequences: lockdown Adding to global supply chain disruptions and falling domestic spending reduces demand for goods and services from China’s trading partners,” the report said.

[Gambas:Video CNBC]