Rising price pressures, slipping production expansion and falling confidence will have negative consequences for most countries, according to the latest Brookings-FT monitoring index. As a result, policymakers will be left with “grim problems,” said Eswar Prasad, a senior fellow at the Brookings Institution. The IMF is expected to downgrade its forecasts for most countries this week as finance ministers and central bankers meet in spring meetings of the fund and the World Bank to discuss how to respond to the bleak economic outlook. Policymakers need to figure out how to deal with rapidly rising prices and the risks of rising interest rates when debt levels are already high. Kristalina Georgieva, the IMF chief executive, described the war in Ukraine on Thursday as a “massive setback” for the world economy. Prasad said there was a risk that 2022 would be “a period full of geopolitical upheavals, persistent supply disruptions and financial market instability, all in the face of growing inflationary pressures and limited room for maneuver.” The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, both for the global economy and for individual countries, recording the extent to which data in the current period is better or worse than normal. Twice a year, the composite index shows a significant loss of dynamic growth since the end of 2021 in advanced and emerging economies, with confidence levels also falling from their peaks and financial market performance falling more recently. “Each of the world’s three major economic blocs is facing significant difficulties,” Prasad said. While spending remains strong in the US and the labor market has returned to pre-pandemic conditions, inflation poses serious difficulties for the Federal Reserve’s mandate on price stability. The rate of price increase jumped to a 40-year high of 8.5% in March. “The Fed is in real danger of losing control of its inflation narrative and could be forced to tighten even more aggressively than it has signaled, increasing the risk of a significant slowdown in growth in 2023,” Prasad said.

China’s problems stem from its desire to maintain its zero-Covid strategy following an increase in cases of the most infectious variant of the Omicron coronavirus. Lockdowns, such as strict restrictions in Shanghai, threaten consumer spending, investment and output, and the prospect of a easing of monetary policy will again exacerbate long-term risks to financial stability. China is set to release its first-quarter gross domestic product on Monday and is widely expected to show that Beijing faces a difficult challenge to meet its 5.5% growth target this year. For Europe, which is more exposed to the Ukraine conflict and struggling to reduce its dependence on Russian energy imports, confidence levels have plummeted. Prasad said there were no easy political solutions and the willingness to act was lacking. “Keeping the world economy on a reasonable growth trajectory will require coordinated action to address key problems, including measures to reduce pandemic disturbances, measures to reduce geopolitical tensions and targeted measures such as infrastructure spending on “boosting long-term productivity instead of just boosting short-term demand.”