IMF lowers global economic growth forecast for 2022 to 4.4% on weaker outlook for US and China

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The International Monetary Fund has cut its global economic growth forecast for 2022 as the Covid-19 pandemic enters its third year, citing weaker prospects for the United States and China as well as persistent inflation.

The global economy will expand 4.4% this year, down from an estimate of 4.9% in October, the Washington-based IMF said in its World Economic Outlook on Tuesday. The fund forecast growth of 3.8% for 2023, up from the previous projection, but the cumulative expansion for the two years will still be 0.3 percentage points lower than the previous forecast.

The United States, the world’s largest economy, saw its forecast reduced on the outlook for President Joe Biden’s spending program and China, the second-largest, on housing challenges.

The global economy grew 5.9% last year, according to the IMF, the strongest in four decades of detailed data. This followed a 3.1% contraction in 2020 that was the worst peacetime decline in broader numbers since the Great Depression.

Central banks that have cut interest rates to mitigate the economic decline caused by the pandemic are facing pressure to tighten policy to deal with soaring consumer prices, threatening to dampen the rebound in growth. Governments also have less fiscal space to meet health needs and support their economies after racking up record debt.

‘Be ready’

“The past two years reaffirm that this crisis and the ongoing recovery is unlike any other,” wrote Gita Gopinath, who became the fund’s second head this month after three years as chief economist, in a blog accompanying the report.

“Policymakers need to vigilantly monitor a wide range of incoming economic data, prepare for contingencies, and be ready to communicate and execute near-term policy changes,” Gopinath said. “In parallel, bold and effective international cooperation should ensure that this year is the year the world escapes the grip of the pandemic.”

While the IMF sees the omicron variant weighing on growth in the first quarter, it expects the negative impact to fade from the second quarter, assuming the global surge in infections subsides and the virus does not transform into new variants that require more restrictions on mobility.

Supply chain disruptions are spurring more widespread inflation than expected, the IMF said, with an annual rate projected to average 3.9% in advanced economies this year, down from a previous estimate of 2.3%, and 5.9% in emerging and developing countries.

The IMF expects the faster pace of cost-of-living increases to gradually ease later this year, assuming price expectations remain firmly anchored as maritime bottlenecks ease and major economies react with interest rate increases.

Advanced economies raising interest rates can create risks to financial stability and capital flows, currencies and fiscal positions of emerging and developing economies after debt levels rise, the IMF said. . International cooperation will be needed to preserve nations’ access to liquidity and facilitate orderly debt restructuring if necessary, the fund said.

IMF projections:

  • The fund cut its US growth forecast by 1.2 percentage points to 4%. The revision reflects the removal of positive impact assumptions from President Joe Biden’s Build Back Better social spending plan, which has stalled in Congress; early withdrawal of Federal Reserve support; and persistent supply chain bottlenecks

  • He cut China’s growth forecast by 0.8 points to 4.8%, citing disruptions caused by the pandemic, the nation’s zero-tolerance policy for Covid-19 and disruptions in the housing sector.

  • The IMF lowered its growth forecasts for Brazil and Mexico by 1.2 percentage points to 0.3% and 2.8%, respectively, as the fight against inflation already prompted a tightening of monetary policy which will weigh on domestic demand

  • India to grow fastest among major economies at 9% from 8.5%, due to improved credit growth

Projections assume that poor health outcomes from Covid-19 recede to low levels in most countries by the end of this year, vaccination rates improve and treatments become more available. Risks are on the downside, with new variants threatening to prolong the pandemic.

Ending the pandemic depends on ending vaccine inequity, the IMF has said. The share of the population fully immunized is about 70% for high-income countries, but less than 4% for low-income countries. Eighty-six countries, representing 27% of the world’s population, failed to reach the 40% immunization level at the end of last year that the IMF says is needed to stem the pandemic.

The world also suffers from deep inequality in Covid-19 testing, with testing rates around 80 times higher in high-income countries than in low-income countries.

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