Stephen Roach

The View | Three reasons expecting a soft landing for the global economy is just wishful thinking

The IMF’s latest global outlook projects a soft landing for the world economy despite the current challenges, but there are reasons to be sceptical

Headwinds include an increasingly sluggish Chinese economy, overlooked consequences of rising interest rates and inflation, and overly optimistic forecasts

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People shop at a supermarket in Beijing on April 25. China’s economy is growing well below the pace recorded from 2010 to 2019, removing a potential cushion that supported global growth during previous crises. Photo: AFP

Stephen Roach

Published: 1:30am, 27 Apr 2022

The predictable downward revision cycle for the global economic outlook has officially begun. That is the message from the semi-annual World Economic Outlook just released by the International Monetary Fund, which reinforces earlier revisions from several prominent private forecasting teams.

The revision, largely in response to the war in Ukraine, is a big one. It calls for a sharp reduction in world economic growth to 3.6 per cent for 2022, fully 1.3 percentage points below the IMF’s global growth forecast of 4.9 per cent made just six months earlier.

To its credit, the IMF warned that this was coming with an interim downward revision of 0.5 percentage points in January. Even so, in looking back over the past 15 years, this is the third-largest cut in the IMF’s regular six-month revision cycle.

In April 2009, as the global financial crisis was unfolding, the IMF cut its global growth estimate for the year by 4.3 percentage points from 3 per cent growth to a 1.3 per cent contraction. As the Covid-19 pandemic erupted in early 2020, the IMF slashed its growth estimate for the year from a pre-pandemic projection of 3.4 per cent growth to a 3 per cent contraction.

In both of those earlier cases, the outsize forecast reductions foretold sharp global recessions. Yet neither the IMF nor most other forecasters believe the current shortfall in global growth will push the world into outright recession. The latest World Economic Outlook calls for a perfect soft landing for the global economy.

Following the recent downward revision, global growth is now expected to settle into a 3.6 per cent growth trajectory over 2022-23, which is fractionally above the 3.4 per cent average since 1980. Landings don’t get much smoother than that.