THE International Monetary Fund (IMF) is reporting that the global economy has entered 2022 in a weaker position than previously expected.
This was outlined in the fund's latest World Economic Outlook (WEO) report published January 25, 2022.
The IMF highlighted that as the new Omicron variant spreads, countries have reimposed mobility restrictions. It also noted that rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging markets and developing economies.
Global growth is now expected to moderate from 5.9 in 2021 to 4.4 per cent in 2022 — half a percentage point lower for 2022 than in the October WEO, largely reflecting forecast markdowns in the two largest economies, the United States and China. The IMF outlook is, however, still more optimistic than the World Bank's projection which forecasts global growth this year at 4.1 per cent. The IMF outlook represents a revised assumption removing the 'Build Back Better' fiscal policy package from the baseline, earlier withdrawal of monetary accommodation, and continued supply shortages produced a downward 1.2 percentage points revision for the United States.
The weak growth outlook is expected to continue at least for the near term with the WEO report outlining that global growth is expected to slow to 3.8 per cent in 2023.
“Although this is 0.2 percentage point higher than in the previous forecast, the upgrade largely reflects a mechanical pickup after current drags on growth dissipate in the second half of 2022, “ the fund said.
The IMF outlined that 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.
The fund also said elevated inflation is expected to persist for longer than envisioned in the October WEO, with ongoing supply chain disruptions and high energy prices continuing in 2022.
“Assuming inflation expectations stay well anchored, inflation should gradually decrease as supply demand imbalances wane in 2022 and monetary policy in major economies responds,” the report outlined.
“Monetary policy in many countries will need to continue on a tightening path to curb inflation pressures, while fiscal policy — operating with more limited space than earlier in the pandemic — will need to prioritise health and social spending while focusing support on the worst affected. In this context, international cooperation will be essential to preserve access to liquidity and expedite orderly debt restructurings where needed,” the WEO report continued.
Moreover, supply chain disruptions, energy price volatility, and localised wage pressures mean uncertainty around inflation and policy paths is high. As advanced economies lift policy rates, risks to financial stability and emerging market and developing economies' capital flows, currencies, and fiscal positions — especially with debt levels having increased significantly in the past two years — may emerge.
With the pandemic continuing to maintain its grip, the emphasis on an effective global health strategy is more salient than ever. Worldwide access to vaccines, tests, and treatments is essential to reduce the risk of further dangerous COVID-19 variants. the report said this requires increased production of supplies, as well as better in-country delivery systems and fairer international distribution.