Global credit rating agency Moody's Investors Service on Wednesday reduced the 2022 real gross domestic product (GDP) growth forecast for G-20 countries to 2.5 per cent from 3.1 per cent made in May.
Moody's also cut the GDP growth forecast for the G-20 nations to 2.1 per cent from 2.9 per cent for the year 2023.
"Global monetary and financial conditions will remain fairly restrictive through 2023," said Madhavi Bokil, Senior Vice President at Moody's.
"Central banks will require decisive proof that high inflation no longer poses a threat to their policy objectives before letting up on their tight monetary stance. The challenging global economic environment of today will be resolved with a sharp and disinflationary slowdown in economic growth," Bokil added.
For G-20 advanced economies, Moody's forecasts 2.1 per cent growth in 2022, and 1.1 per cent in 2023.
For G-20 emerging market countries, Moody's projects 3.3 per cent growth in 2022 and 3.8 per cent in 2023.
According to Moody's, global trade in durable goods and commodity prices are set to soften.
A pullback in goods demand is underway. Supply-chain problems are easing and global auto production is picking up, it said.
Producer price inflation, which is a broad measure of supply-side inflation, appears to have peaked in several countries.
Importantly, inflation expectations remain anchored over the medium term. Labour markets remain tight in advanced economies, said Moody's.
The invasion of Ukraine remains central to the larger macroeconomic picture.
While Moody's believes it is unlikely the conflict will broaden beyond Ukraine's borders, such an event would mark a significant escalation.
Further, the risk of further energy shocks remains high. As for monetary policy, it will be tricky for central banks to navigate to an equilibrium where inflation falls but economic activity does not slip into a deep recession.
China's low tolerance for Covid-19 outbreaks and weakness in its property sector pose risks to its growth outlook.