Recovery disrupted: IMF cuts global economic growth forecast | Business and Economy News

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Cut to global forecast largely reflects downward revisions to US and China outlooks.

The global economy is entering 2022 “in a weaker position than previously expected,” the International Monetary Fund warned on Tuesday, as it downgraded its global growth outlook largely due to clouds gathering over the recoveries in the United States and China.

The IMF’s latest World Economic Outlook calls for the global growth to downshift from 5.9 percent in 2021 to 4.4 percent this year. The 2022 forecast is half a percentage point lower than the Fund’s October outlook and largely reflects forecast markdowns for the world’s two largest economies.

The Fund saw the US economy growing 4.0 percent this year. That was 1.2 percentage points lower than its October call and reflected the failure to pass President Joe Biden’s Build Back Better spending plan, the Federal Reserve’s unwinding of pandemic stimulus measures, and continuing supply shortages that are driving inflation.

The IMF sees China’s economy growing 4.8 percent this year – 0.8 percentage points lower than its October forecast – thanks to the country’s business-sapping, zero-tolerance COVID-19 policy, and ongoing stress in its heavily indebted property sector.

Inflation, risks, and bright spots

Inflation has proven to be more persistent than the IMF bargained for back in October, thanks to continuing supply chain disruptions and high energy prices. The Fund sees those persisting this year, but gradually decreasing if inflation expectations remain anchored, “supply-demand imbalances wane in 2022” and central banks like the US Federal Reserve raise borrowing costs to rein in rising prices.

But as always, there are risks to the outlook, said the IMF, such as new COVID-19 variants that could prolong the pandemic and introduce fresh economic disruptions. Supply chain snarls, volatile energy prices, and localised wage pressures could create more uncertainty around inflation, said the Fund, while interest rate increases in advanced economies such as the US could negatively affect emerging and developing economies.

“Rising geopolitical tensions and social unrest also pose risks to the outlook,” IMF First Deputy Managing Director Gita Gopinath told reporters during a virtual news conference on Tuesday.

Gopinath also highlighted a recurring theme the Fund has raised since the global economy started its long slog back to pre-pandemic health, namely the widening recovery gap between richer and poorer nations.

“Even as recoveries continue, the troubling divergence in prospects across countries persists,” said Gopinath, noting that advanced economies are expected to return to their pre-pandemic trends this year, while several emerging markets and developing economies “are projected to have sizeable output losses into the medium term.”

The IMF downgraded its outlook for Brazil and Mexico, Latin America’s biggest economies, as well as South Africa.

While the overall trend for the globe is a recovery downshift, the IMF upgraded the outlook for India. It also sees the Middle East and North Africa getting a performance boost this year from higher energy prices.

“The MENA region is one where we actually have an upgrade for this year, so we’re expecting growth to be 4.4 which is an upgrade of point three,” Petya Koeva Brooks, deputy director at the IMF’s research department told reporters.  “The main reason for that is the improved prospects for growth in oil exporters, which is again linked directly to the higher oil prices.”

 

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