IMF Cuts Global Growth Outlook, Citing Forecast Markdowns in US and China
The International Monetary Fund (IMF) cut its global growth outlook for 2022, largely reflecting forecast markdowns in the two largest world economies, the U.S. and China. The impact of the IMF report on domestic and international business policy remains to be seen.
Global growth is expected to moderate to 4.4 percent in 2022, from 5.9 in 2021 –half a percentage point lower for 2022 than predicted in the October World Economic Outlook (WEO) — per a Jan. 25 IMF report.
For the U.S., the IMF said that a revised assumption removing the Build Back Better fiscal policy package from the baseline, earlier withdrawal of monetary accommodation, and continued supply shortages produced a downward 1.2% revision. As for China, pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and protracted financial stress among property developers induced a 0.8% downgrade, according to the IMF.
“The global economy enters 2022 in a weaker position than previously expected,” the IMF wrote in the report. “As the new omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects.”
Elevated Inflation, High Energy Prices, Supply Chain Disruptions to Persist in 2022
The IMF added that elevated inflation is expected to persist for longer than envisioned in the October World Economic Outlook, with ongoing supply chain disruptions and high energy prices continuing in 2022.
“Assuming inflation expectations stay well anchored, inflation should gradually decrease as supply-demand imbalances wane in 2022 and monetary policy in major economies responds,” the IMF report detailed.
The report also noted that the emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruptions. In addition, supply chain disruptions, energy price volatility, and localized wage pressures mean uncertainty around inflation and policy paths is high.
“As advanced economies lift policy rates, risks to financial stability and emerging market and developing economies’ capital flows, currencies, and fiscal positions — especially with debt levels having increased significantly in the past two years — may emerge. Other global risks may crystallize as geopolitical tensions remain high, and the ongoing climate emergency means that the probability of major natural disasters remains elevated,” the IMF report suggested.
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