IMF cuts 2022 global growth forecast as slowdowns in US, China to affect economies worldwide

• IMF forecasted global GDP to grow 0.5 percentage points less than previously estimated

• Market volatility due to rising Omicron cases, supply chain disruptions, and higher inflation will affect advanced and emerging economies

The International Monetary Fund (IMF) has downgraded its global fiscal growth forecast for this year as more significant slowdowns in the United States, and China is expected to drag down the output on every continent.

“The global economy enters 2022 in a weaker position than previously expected,” the IMF wrote in its latest World Economic Report, published Tuesday.

The organization highlighted “downside surprises” of market volatility induced by the rising Omicron variant cases of COVID-19, supply chain disruptions, and higher inflation, which will affect advanced and emerging economies worldwide.

Weighed down by US and China

In its delayed report, the IMF forecasted global gross domestic product (GDP) to weaken from 5.9% in 2021 to 4.4% in 2022 —half a percentage point lower than previously estimated.

The revised outlook is led by growth markdowns in the world’s two largest economies.

In the U.S., the international institution said the failure to pass President Biden’s $2.2 trillion infrastructure and social policy package and the Federal Reserve’s moves to withdraw stimulus and tighter monetary policy with upcoming rate hikes were the reasons it lowered the nation’s growth forecast by 1.2 percentage points to 4.0%.

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In China, the IMF pointed towards the “projected financial stress” among its real estate sector and the pandemic-induced disruptions related to the zero-tolerance COVID-19 policy that restricted travel and business shutdowns as the reasons behind lowering the growth forecast by 0.8 percentage points to 4.8%.

Slower growth worldwide

Global growth estimate is forecasted to be lower due to surging COVID-19 cases coupled with rising inflation and higher energy prices worldwide, most notably in Canada, Brazil and Mexico.

The organization said higher inflation is expected to last longer than previously anticipated but added that it should ease later this year “as supply-demand imbalances wane in 2022 and monetary policy in major economies responds.”

Earlier this month, IMF Managing Director Kristalina Georgieva warned that rate hikes by the central banks of advanced economies, especially the U.S., will create a “dangerous divergence” between developed and developing economies, causing a greater uncertainty and potential turbulence in 2022.

Moreover, in December, the fund said the global debt surged to $226 trillion in 2020, the biggest ever one-year jump since World War II, mainly due to the COVID-19 pandemic and a deep recession.

Forecast for 2023

However, the new report upgraded its 2023 growth forecast by 0.2 percentage points to 3.8%, warning that the estimate precluded the emergence of new variants of coronavirus.

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“The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide and therapies become more effective,” it said.

“The emphasis on an effective global health strategy is more salient than ever.”

Picture Credit: Dawn