IMF’s warning in its latest World Economic Outlook (WEO), that the worst is yet to come for the global economy doesn’t come as a surprise. The WEO’s global GDP forecast is not so dire with 2022 growth pegged at 3.2 per cent and 2023 at 2.7 per cent. But it warns that 2023 may ‘feel like a recession’, as a third of world economies experience a technical recession and three largest ones (US, EU and China) stall.  A material slowdown is forecast for global trade, from 4.3 per cent growth in 2022 to 2.5 per cent by 2023. This appears optimistic compared to the World Trade Organization’s forecast of global trade growth of 3.5 per cent in 2022 and just 1 per cent in 2023. The WEO expects global inflation to peak in the current quarter but it predicts that emerging markets (EMs) will bear the brunt of slowing trade, tighter monetary conditions and imminent financial turmoil. That’s no big finding considering that EMs are already battling these conditions.

WEO forecasts have been subject to errors in the past, with the previous two reports overestimating growth and underestimating inflation. Therefore, it is useful to focus on the conclusions rather than the numbers themselves. The slowdown is attributed to three factors – the Russia-Ukraine conflict, broadening inflation and China’s Covid and property crisis-induced slowdown. The IMF believes that advanced economy central banks may have no choice but to tighten their monetary policies and pull back QE until inflation is tamed. The Bank of England is obviously not listening to this advice. Last heard, it had bought up to £8.3 billion of bonds in just the last two weeks to fight a fire set off by its own government. The IMF sees global flight to safety that further boosts the dollar, making EM imports costlier, their inflation stickier and worsening their external debt situation. These are, again, not new discoveries -- India, for instance, has been trying to combat these very problems in recent months. While not offering too many solutions, IMF urges EMs to avoid actions like export bans or fiscal stimulus, asking them to ‘batten down their hatches”. .  This is an advice that is easy to give but impossible to follow. Every country will look out for itself when faced with price rise and export bans are among the first policy measures that are resorted to. India and the wheat export ban is an example.

India gets only a cursory mention in this WEO, with its GDP growth pegged at 6.8 per cent for 2022 and 6.1 per cent for 2023, making it an outlier among EMs.It is perhaps some comfort that, of the many risks that IMF flags for EMs, India seems susceptible only to few. With a swift roll-back of Covid stimulus and significant tightening by RBI, India seems to be doing a fair job of tackling inflation. Minimal dependence on external debt insulates it from sovereign debt distress. But high import reliance for energy and a widening CAD are chinks in India’s armour that policymakers are now grappling with.