The International Monetary Fund (IMF), yesterday, lowered its economic forecast for the global economy to 4.4%, amid uncertainty about the pandemic, inflation, supply disruptions and U.S. monetary tightening posed further risks.
The IMF said the rapid spread of the Omicron variant had led to renewed mobility restrictions in many countries and increased labour shortages, while supply disruptions were continuing to fuel inflation.
Omicron was expected to weigh on economic activity in the first quarter, but ease up thereafter, given that it was associated with less severe illness,
IMF’s Economic Counsellor and Director, Research Department, Gita Gopinath, said: “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China.”
Escalating conflict between Russia and Ukraine could boost energy prices, keeping headline inflation at elevated levels for longer, Gopinath told journalists as the global lender updated its World Economic Outlook.
At a news conference, Gopinath said: “The continuing global recovery faces multiple challenges as the pandemic enters its third year. The Omicron Variant has led to renewed mobility restrictions in many countries and increased labour shortages.
“Supply disruptions still weigh on activity and are contributing to higher inflation, adding to pressures from strong demand and elevated food and energy prices. Moreover, record debt and rising inflation constrain the ability of many countries to address renewed disruptions.”
According to the updated Outlook, global growth is expected to slow to 3.8% in 2023, a 0.2 percentage-point uptick from the previous forecast in October, adding the increase was largely mechanical after current drags on growth dissipate in the second half of 2022.
I a Blog accompanying the report, Gopinath said: “Policymakers 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.
“In parallel, bold, and effective international cooperation should ensure that this is the year the world escapes the grip of the pandemic.”
Pandemic challenges
She added that overall, the pandemic was now projected to result in cumulative economic losses of $13.8 trillion through 2024, compared to the previous forecast of $12.5 trillion.
The IMF said bringing the pandemic to an end depends on ending vaccine inequality. 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 Outlook also revised up its 2022 inflation forecasts for both advanced and developing economies, and said elevated price pressures were likely to persist longer than previously forecast given ongoing supply chain disruptions and high energy prices.
Policymakers 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.
Inflation uptick
It said inflation was expected to average 3.9% in advanced economies and 5.9% in emerging market and developing economies in 2022 before subsiding in 2023, aided by moderated growth in fuel and food prices over that period.
While economies were continuing to recover from the shock of the pandemic, the pace of the recoveries was diverging widely between rich and poorer countries, the IMF said.
While advanced economies are projected to return to pre-pandemic trend this year, several emerging markets and developing economies face sizeable output losses.
Gopinath estimates that 70 million more people were living in extreme poverty after the pandemic, setting back the progress in poverty reduction by several years.
As a result, it was critical to ensure worldwide access to vaccines, tests, and treatments to reduce the risk of further dangerous COVID-19 variants, while many countries would need to raise interest rates to curb inflation pressures.
Gopinath noted that 60% of low-income countries were already in or at high risk of debt distress, and urged the Group of 20 to speed up debt restructuring processes and suspend debt service payments while the restructurings are being negotiated.
