IMF Downgrades Global Growth Projections Amid Omicron Aftershocks

The International Monetary Fund (IMF) has projected global growth to downshift from 5.9 percent in 2021 to 4.4 percent this year.

The global lender’s latest World Economic Outlook (WEO) report projected the global slowdown due to the “impediments” created by the Omicron variant although they are likely to subside in the second quarter of the ongoing calendar year.

The global economy is entering 2022 “in a weaker position than previously expected”, the Washington-based crisis lender warned on Tuesday as it downgraded its global growth forecast mostly due to uncertainty over the recoveries in the United States and China.

The IMF’s latest World Economic Outlook expects global growth to slide from 5.9 percent in 2021 to 4.4 percent this year. This forecast is half a percentage point lower than the global lender’s October estimate, owing to revisions for the world’s two largest economies.

America’s economy is expected to rise 4.0 percent this year, as per the report. The US government’s incapability to approve President Joe Biden’s Build Back Better spending package, the Federal Reserve’s unwinding of pandemic stimulus measures, and continued supply shortages have all notably contributed to the lower forecast.

The fund also forecasts that the Chinese economy will grow 4.8 percent this year, 0.8 percentage points lower than its October forecast.

Other big economies were also downgraded sharply as a result of the continued pandemic disruptions, with Germany losing 0.8 points and Brazil and Mexico losing 1.2 points each. Conversely, India has an upgrade to nine percent while Japan got a moderate 3.3 percent point boost in the WEO report. The IMF also sees the Middle East and North Africa (MENA) getting a big boost this year from higher energy prices.

Petya Koeva Brooks, the Deputy Director at the IMF’s research department told international news reporters that “the MENA region is one where we actually have an upgrade for this year, so we’re expecting growth to be 4.4 which is an upgrade of point three”.

“The main reason for that is the improved prospects for growth in oil exporters, which is again linked directly to the higher oil prices,” she explained.

The IMF emphasized that containing the pandemic is crucial for the economy’s future prospects, and advocated for mass vaccinations in poorer countries which have fallen behind as the richer economies have moved to deploy booster injections among their already well-vaccinated populations.

Its new and first Deputy Managing Director, Gita Gopinath, told reporters that “bold and effective international cooperation should ensure that this year the world escapes the grip of the pandemic”. She remarked that the pandemic’s cumulative economic losses over five years are likely to exceed about $14 trillion by 2024.

Gopinath brought up a frequent concern addressed by the global lender since the global economy began its long haul back to pre-pandemic levels, which is the rising recovery gap between richer and poorer countries. If there’s a downshift in COVID-19 infections and energy price hikes, “inflation should gradually decrease as supply-demand imbalances wane in 2022 and monetary policy in major economies responds,” she maintained.

It is noteworthy that the IMF forecasts inflation to average 3.9 percent in developed countries and 5.9 percent in emerging and developing economies in 2022 before subsiding in 2023.

The forecast is nonetheless fraught with dangers such as geopolitical tensions and a wave of price hikes affecting consumers and companies that are set to persist longer than expected. Following a strong rebound last year when the global economy expanded by an estimated 5.9 percent, the IMF trimmed predictions for virtually every nation except India, but it was the downgrades to China and the US that had the most impact.

While the outlook for 2023 seems to have improved a bit, it is “not enough to make up ground lost due to the downgrade to 2022”. The IMF estimates that the negative impact may begin to lessen in the second quarter if COVID-19 infections subside and the virus does not evolve into new types requiring more mobility limitations.

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