The International Monetary Fund (IMF) has reduced its forecast for Egypt’s economic growth during fiscal year 2022/23 to 4.8%, compared to 5% in its April outlook, said Petya Koeva Brooks, the Deputy Director of the Research Department at the IMF in a virtual press conference.
Brooks said that the IMF attributed the forecast change to the negative repercussions of the war in Ukraine that hit the tourism sector and caused food price hikes.
Concerning the last FY, the IMF maintained its projections for Egypt’s real GDP growth at 5.9% as projected in last April.
She added that Egypt requested assistance from the IMF, and that a mission visited Egypt at the end of last month, and held meetings with the Egyptian authorities, and negotiations are still continuing with the Egyptian government.
Regarding the world economic outlook, the IMF has revised its forecast for global growth to 3.2% in 2022, down 0.4% from its April outlook, compared to 6.1% last year.
In its July World Economic Outlook, the IMF forecasted global growth to decline further to 2.9% in 2023, down 0.7% from its April World Economic Outlook.
In April, the IMF revised its projection for global growth downwards to 3.6% in both 2022 and 2023, 0.8% and 0.2% lower than the January forecast, respectively.
The IMF’s latest World Economic Report stated that a tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize.
It explained that the Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations.
“Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID-19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine,” according to the report.
It said that lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4% in the United States.
The IMF said that in China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1%, with major global spillovers.
“In Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy. Global inflation has been revised up due to food and energy prices, although this is mitigated by reduced demand, and is anticipated to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies this year—upward revisions of 0.9% and 0.8%, respectively,” according to the IMF.
The report said that in 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9%.
The IMF highlighted that the risks to the outlook are overwhelmingly tilted to the downside.
The fund mentioned that the war in Ukraine could lead to a sudden stop of European gas imports from Russia; inflation could be harder to bring down than anticipated either if labor markets are tighter than expected or inflation expectations unanchored; tighter global financial conditions could induce debt distress in emerging market and developing economies; renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis might further suppress Chinese growth; and geopolitical fragmentation could impede global trade and cooperation. A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6% and 2.0% in 2022 and 2023, respectively, would put growth in the bottom 10% of outcomes since 1970.
The IMF revised its projection for the Middle East and Central Asia’s real GDP to 4.8% in 2022 and 3.5% in 2023. The fund projected in April that the region’s real GDP would grow by 4.6% and 3.7% in 2022 and 2023, respectively.
The IMF said that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers.
It added that the tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them. The fund mentioned that targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy. Such policies will need to be offset by increased taxes or lower government spending.
The IMF said that the tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary.
“Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices. And as the pandemic continues, vaccination rates must rise to guard against future variants. Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition,” the report concluded.