The International Monetary Fund is now less upbeat about the global economy for 2021 but still sees reasonable growth over the medium term.
Lowering its growth forecast for the world economy for this year on Tuesday, the Washington-based IMF cited supply-chain disruptions in rich economies and global-health concerns caused by the spread of the Covid-19 Delta variant as main challenges.
In its World Economic Outlook, the fund said it expects global gross domestic product to grow by 5.9 per cent this year — 0.1 percentage point lower than its July estimate. For 2022, the IMF has kept its global growth projection at 4.9 per cent. Beyond 2022, however, the IMF forecasts a moderate global growth level of 3.3 per cent over the medium term.
The revised outlook comes amid supply chain issues in advanced economies and a worsening health situation in emerging countries.
"This modest headline revision masks large downgrades for some countries," Gita Gopinath, chief economist at the IMF, said in an accompanying blog post.
"The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions," said Gopinath.
For the Middle East and Central Asia region, the outlook for 2021 was trimmed by 0.1 per cent to 4.1 per cent. Among leading economics, the growth outlook for the US was trimmed 0.1 percentage point to 6.0 per cent this year.
While the projection for China also was reduced by 0.1 percentage point to 8.0 per cent, the Fund maintained its the growth outlook for India at 9.5 per cent.
Several other major economies saw their outlook cut, including Germany, whose economy now is projected to grow 3.1 per cent this year, down 0.5 percentage point from its July forecast. Japan’s outlook was lowered by 0.4 percentage point to 2.4 per cent.
The IMF estimates show that while advanced economies could exceed their pre-pandemic levels in 2024, developing countries, excluding China, could remain 5.5 per cent below their pre-pandemic forecast.
The fund also raised its inflation outlook, urging policymakers to stand ready to take swift action if the recovery strengthens more quickly than expected or inflation risks become pronounced. It warns that the negative impact of inflation could grow further, if the pandemic-related supply-chain disruptions turn out to be more damaging and long-lasting.
As a result, the IMF warned that "although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible."
Prices from food to medicine to vehicles have risen world-wide, threatening the global recovery, it said.
The fund now expects consumer-price inflation in advanced economies to reach 2.8 per cent in 2021 and 2.3 per cent in 2022, up from 2.4 per cent and 2.1 per cent, respectively, in its July report. Inflationary pressure is even more pronounced in emerging and developing economies, with consumer prices rising 5.5 per cent this year and 4.9 per cent next year.
“While monetary policy can generally look through transitory increases in inflation, central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery,” said Gopinath.
This rising inflation has ramped up the pressure on central banks to ease off their monetary stimulus programs quicker than anticipated.
The IMF, a group made up of 190 member countries, promotes international financial stability and monetary cooperation. It also acts as a lender of last resort to countries in financial distress.
The IMF economists said the foremost policy priority is to vaccinate an adequate number of people in every country to prevent dangerous mutations of the virus. They stressed the importance for major economies to fulfill pledges to provide vaccines and financial support to global vaccination efforts before new variants knock a tenuous recovery off track. “Policy choices have become more difficult…with limited room to manoeuver,” they said in the report.
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