IMF cuts growth forecasts for US, China and the world as Omicron spreads

The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington April 21, 2017. — Reuters pic
The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington April 21, 2017. — Reuters pic

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WASHINGTON, Jan 25 — The International Monetary Fund lowered its economic forecasts for the United States, China and the global economy today, and said uncertainty about the pandemic, inflation, supply disruptions and US monetary tightening posed further risks.

“We project global growth this year at 4.4 per cent, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” Gita Gopinath, the IMF’s No. 2 official, wrote in a blog on the latest update of the World Economic Outlook.

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 fuelling 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, the IMF said.

Global growth is expected to slow to 3.8 per cent in 2023, a 0.2 percentage-point uptick from the previous forecast in October, the IMF said, but it said the increase was largely mechanical after current drags on growth dissipate in the second half of 2022.

Overall, the pandemic was now projected to result in cumulative economic losses of US$13.8 trillion (RM57 trillion) through 2024, compared to the previous forecast of US$12.5 trillion, Gopinath, who previously served as the IMF’s chief economist, wrote.

The IMF cut its forecast for US growth by 1.2 percentage points given the failure of US President Joe Biden to pass a massive social and climate spending package, earlier tightening of US monetary policy and continued supply shortages.

The US economy is now forecast to grow by 4 per cent in 2022 after expanding 5.6 per cent IN 2021, with growth seen easing further to 2.6 per cent in 2023, the IMF said.

It downgraded China’s forecast by 0.8 percentage point to 4.8 per cent in 2022 after 8.1 per cent growth in 2021, with growth to edge higher again to 5.2 per cent in 2023.

Pandemic-induced disruptions related to China’s zero-tolerance Covid-19 policy and protracted financial stress among property developers prompted the downgrade, the IMF said.

The IMF also cut its forecast for the Euro area by 0.4 percentage point to 3.9 per cent in 2022, and said growth there would slow to 2.5 per cent in 2023.

The Fund cut by 1.2 percentage points each its 2022 growth forecast for Brazil and Mexico, Latin America’s largest economies. Brazil is now seen growing 0.3 per cent this year and Mexico 2.8 per cent, while the region is expected to grow 2.4 per cent, 0.6 percentage point below the previous forecast.

India and Japan saw their forecasts upgraded somewhat.

The IMF cautioned that the emergence of new Covid-19 variants could prolong the pandemic and induce renewed economic disruptions, while supply chain disruptions, energy price volatility, and localized wage pressures posed further risks.

It 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.

It said inflation was expected to average 3.9 per cent in advanced economies and 5.9 per cent 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, the IMF said.

Seventy million more people were living in extreme poverty after the pandemic, setting back the progress in poverty reduction by several years, Gopinath wrote in her blog.

The IMF said 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 per cent 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. — Reuters

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