Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

IMF Cuts 2022 World Economic-Growth Forecast to 4.4% on Weaker U.S., China Outlooks

Published 25/01/2022, 14:24
Updated 25/01/2022, 14:24
© Reuters.

© Reuters.

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The International Monetary Fund cut its world economic growth forecast for 2022 as the Covid-19 pandemic enters its third year, citing weaker prospects for the U.S. and China along with 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 3.8% growth for 2023, up from the prior projection, but cumulative expansion for the two years will still be 0.3 percentage point less than previously forecast. 

The U.S., the world’s largest economy, saw its forecast cut on the outlook for President Joe Biden’s spending agenda and China, the second-biggest, on challenges in real estate.

The world economy expanded 5.9% last year, the IMF estimated, the most in four decades of detailed data. That followed a 3.1% contraction in 2020 that was the worst peacetime decline in broader figures since the Great Depression.

Central banks that slashed interest rates to soften the economic decline caused by the pandemic face pressure to tighten policy to confront surging consumer prices, threatening to curtail the growth rebound. Governments also have less fiscal space for spending to address health needs and buoy their economies after piling up record debt. 

‘Be Ready’

“The last two years reaffirm that this crisis and the ongoing recovery is like no other,” Gita Gopinath, who became the fund’s No. 2 official this month after three years as its chief economist, wrote in a blog accompanying the report.

“Policy makers must vigilantly monitor a broad swath of incoming economic data, prepare for contingencies, and be ready to communicate and execute policy changes at short notice,” Gopinath said. “In parallel, bold, and effective international cooperation should ensure that this 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 starting in the second quarter, assuming that the global surge in infections abates and the virus doesn’t mutate into new variants that require more restrictions on mobility.

Supply-chain disruptions are spurring more broad-based inflation than anticipated, the IMF said, with the annual rate projected to average 3.9% in advanced economies this year, up from a prior 2.3% estimate, and 5.9% in emerging and developing nations. 

The IMF sees the faster pace for cost-of-living increases easing gradually later this year, assuming price expectations remain well anchored, as shipping bottlenecks ease and major economies respond with interest-rate increases.  

Advanced economies raising interest rates may create risks for financial stability and emerging-market and developing economies’ capital flows, currencies and fiscal positions after debt levels increased, the IMF said. International cooperation will be needed to preserve nations’ access to cash and facilitate orderly debt restructuring where needed, the fund said. 

IMF Projections: 

  • The fund slashed its forecast for growth in the U.S. by 1.2 percentage points to 4%. The revision reflects removal of assumptions for a positive impact from President Joe Biden’s Build Back Better social-spending plan, which stalled in Congress; earlier withdrawal of Federal Reserve support; and continued supply-chain bottlenecks
  • It trimmed China’s growth forecast by 0.8 point to 4.8%, citing disruptions caused by the pandemic, the nation’s zero-tolerance policy for Covid-19 and disruption in the housing sector.
  • The IMF cut its growth forecasts for Brazil and Mexico by 1.2 percentage points to 0.3% and 2.8%, respectively, with the fight against inflation already prompting tighter monetary policy that will weigh on domestic demand
  • India will see the fastest growth among major economies at 9% from 8.5%, due to credit-growth improvements

The projections assume that bad 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 tilted to the downside, with new variants threatening to extend the pandemic. 

Bringing the pandemic to an end depends on ending vaccine inequality, the IMF said. The fully vaccinated share of the population is about 70% for high-income countries but less than 4% for low-income nations. Eighty-six nations, accounting for 27% of the world’s population, fell short of the 40% vaccination level for the end of last year that the IMF estimates is needed to curb the pandemic.

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

©2022 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.