WASHINGTON- The International Monetary Fund lowered its economic forecasts for the United States, China and the global economy 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 percent, 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, read from her blog.
The IMF said the rapid spread of the Omicron variant had led to renewed mobility restrictions in many countries and increased labor shortages, while supply disruptions were continuing to fuel 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.
Escalating conflict between Russia and Ukraine could boost energy prices, keeping headline inflation at elevated levels for longer, Gopinath told reporters as the global lender updated its World Economic Outlook.
Global growth is expected to slow to 3.8 percent in 2023, a 0.2 percentage-point uptick from the previous forecast in October, the IMF said, adding 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 $13.8 trillion through 2024, compared to the previous forecast of $12.5 trillion, Gopinath, who previously served as the IMF’s chief economist, said.
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 percent in 2022 after expanding 5.6 percent in 2021, with growth seen easing further to 2.6 percent in 2023, the IMF said.
“We are certainly living in very turbulent times,” Gopinath said, adding that there was still a “tremendous uncertainty” about how much the Federal Reserve would raise interest rates and over what period of time, as well as rising geopolitical tensions around the world.
She said rising interest rates should address exuberance in financial markets and usher in “a more orderly correction” as long as the Fed communicated clearly about its policy.
The IMF downgraded China’s forecast by 0.8 percentage point to 4.8 percent in 2022 after 8.1 percent growth in 2021, with growth to edge higher again to 5.2 percent 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 percent in 2022, and said growth there would slow to 2.5 percent in 2023.
The IMF 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 percent this year and Mexico 2.8 percent, while the region is expected to grow 2.4 percent, 0.6 percentage point below the previous forecast. – Reuters
