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The International Monetary Fund has downgraded its global growth forecast for this year as rising Covid-19 cases, supply chain disruptions and higher inflation hamper economic recovery.
In its delayed World Economic Outlook report, published Tuesday, the IMF said it expects global gross domestic product to weaken from 5.9% in 2021 to 4.4% in 2022 — with this year’s figure being half a percentage point lower than previously estimated.
“The global economy enters 2022 in a weaker position than previously expected,” the report noted, highlighting “downside surprises” such as the emergence of the omicron Covid variant, and subsequent market volatility, since its October forecast.
The revised outlook is led by growth markdowns in the world’s two largest economies; the U.S. and China.
The U.S. is expected to grow 4.0% in 2022, 1.2 percentage points lower than previously forecast as the Federal Reserve moves to withdraw its monetary stimulus, even as supply chain disruptions weigh on the economy. The updated outlook also removed President Biden’s signature Build Back Better fiscal policy package from its baseline projection after failure to pass the original bill.
China, meanwhile, is predicted to grow 4.8% this year, down 0.8 percentage points from earlier estimates amid disruptions caused by its zero-Covid policy, as well as “projected financial stress” among its property developers.
Inflation in focus
Elsewhere, still surging Covid cases coupled with rising inflation and higher energy prices weighed on growth estimates globally, most notably in Brazil, Canada and Mexico.
The IMF said higher inflation is set to persist for longer than previously anticipated, but added that it should ease later this year, “as supply-demand imbalances wane in 2022 and monetary policy in major economies responds.”
Looking ahead, the report upgraded its 2023 growth forecast by 0.2 percentage points to 3.8%. However, it warned that the estimate precluded the emergence of a new Covid variant, and said any pickup would be dependent on equitable global access to vaccines and health care.
“The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide and therapies become more effective,” it said.
“The emphasis on an effective global health strategy is more salient than ever,” it added.