IMF cuts growth forecast due to supply disruption, Covid pandemic

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A man passes a poster for the annual meeting of the World Bank Group and the International Monetary Fund in Washington, DC on October 11, 2021.

Alex Wong | Getty Images News | Getty Images

The International Monetary Fund is not optimistic about the global economy in 2021, but still believes that medium-term growth is reasonable.

In the World Economic Outlook released on Tuesday, the IMF stated that it expects global GDP to grow by 5.9% this year, which is 0.1 percentage point lower than the July estimate. For next year, the International Monetary Fund will maintain its global growth forecast at 4.9%.

This year’s revised outlook was raised at a time when the supply chain problems of advanced economies and the health of emerging countries deteriorated.

IMF chief economist Gita Gopinath said in an accompanying blog post: “This modest headline revision obscures the substantial downgrades of some countries.”

“Due to the worsening pandemic dynamics, the outlook for low-income developing country groups has been greatly dimmed. The downgrade also reflects the more difficult prospects for the Gouda Economic Group in the near term, partly due to supply disruptions.”

The United States is one of the countries in this position; the International Monetary Fund has lowered the country’s growth forecast for this year by 1 percentage point to 6%. The growth prospects of Spain and Germany have also been revised down by 0.5 percentage points, while Canada has been revised down by 0.6 percentage points.

However, the International Monetary Fund predicts that after 2022, global medium-term growth will remain at a moderate level of 3.3%.

Recovery gap

The International Monetary Fund said it pays particular attention to the different paces of recovery in developed and emerging economies.

Its estimates show that although advanced economies may exceed pre-pandemic levels in 2024, developing countries other than China may still be 5.5% lower than pre-pandemic forecasts.

“These differences are the result of’great vaccine differences’ and huge differences in policy support,” Gopinath said.

“Although more than 60% of the population in developed economies have been fully vaccinated, and some people are now receiving booster shots, about 96% of the population in low-income countries are still unvaccinated.”

inflation

Consumer prices have risen sharply in the past few months due to supply chain disruptions and rising commodity prices (especially natural gas) prices.

In the United States, consumer prices rose by 5.4% year-on-year in July—matching the largest increase since August 2008—and then slowed slightly in August. At the same time, in the Eurozone, the inflation rate reached a 13-year high in September.

This rising inflation has intensified the pressure on the central bank to relax its monetary stimulus plan faster than expected.

The fund warned in its report: “Inflation risks are biased upwards. If the mismatch between supply and demand caused by the pandemic lasts longer than expected, inflation risks may become a reality.”

Therefore, the International Monetary Fund warned that “although central banks can usually look at and avoid tightening through temporary inflationary pressures until the underlying price dynamics become clearer, if the recovery is faster than expected or risky, they should be prepared Act quickly. Rising inflation expectations become tangible.”

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