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IMF Downgrades US Growth Forecast Citing Supply Chain Disruptions, Inflation

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The International Monetary Fund slashed its 2021 growth forecast for the U.S. by 0.1% percentage point compared to its July outlook, to 6%, citing rising inflation and supply disruptions, which pose “another policy challenge.”

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“On the one hand, pandemic outbreaks and weather disruptions have resulted in shortages of key inputs and dragged manufacturing activity lower in several countries. On the other hand, these supply shortages, alongside the release of pent-up demand and the rebound in commodity prices, have caused consumer price inflation to increase rapidly in, for example, the United States,” according to the IMF’s latest World Economic Outlook.

The downgrade comes on the heels of Goldman Sachs analysts’ downgrade of their U.S. economic growth target to 5.6% for 2021 and to 4% for 2022 yesterday. The analysts cite an expected decline in fiscal support through the end of next year and a more delayed recovery in consumer spending than previously expected, Reuters reports. Analysts noted a “longer lasting virus drag on virus-sensitive consumer services” as well as an expectation that semiconductor supply likely will not improve until the first half of 2022, delaying inventory restocking until next year, Reuters reports.

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The IMF also cut its global growth outlook and is now projecting the global to grow 5.9% in 2021 and 4.9% in 2022, 0.1 percentage point lower for 2021 than in the July forecast, according to its reports.

It said that the downward revision for 2021 reflects a downgrade for advanced economies — in part due to supply disruptions — and for low-income developing countries, largely due to worsening pandemic dynamics.

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Rapid spread of Delta and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome,” according to the report. “Policy choices have become more difficult, confronting multidimensional challenges — subdued employment growth, rising inflation, food insecurity, the setback to human capital accumulation, and climate change — with limited room to maneuver.”

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