IMF lowers growth forecasts for US, China and world as Omicron spreads
IMF lowers growth forecasts for US, China and world as Omicron spreads

IMF lowers growth forecasts for US, China and world as Omicron spreads

  • The US forecast for 2022 is cut by 1.2 percentage points
  • Escalating conflict between Russia and Ukraine could keep inflation high
  • The pandemic cost the global economy $ 13.8 trillion through 2024

WASHINGTON, Jan. 25 (Reuters) – The International Monetary Fund on Tuesday lowered its economic forecasts for the United States, China and the global economy, saying uncertainty over the pandemic, inflation, supply disruptions and US monetary tightening pose additional risks.

“We expect global growth this year of 4.4%, 0.5 percentage points lower than previously expected, primarily due to downgrades for the US and China,” read Gita Gopinath, the IMF’s No. 2 official, 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 continued to boost inflation. Omicron was expected to weigh on economic activity in the first quarter, but eased thereafter as it was linked to less serious illness, the IMF said.

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Escalating conflict between Russia and Ukraine could boost energy prices and keep overall 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% in 2023, up 0.2 percentage points from the previous forecast in October, the IMF said, adding that the increase was largely mechanical after the current growth inhibitions disappeared in the second half of 2022.

Overall, the pandemic was now expected to result in cumulative economic losses of $ 13.8 trillion through 2024 compared to the previous forecast of $ 12.5 trillion, said Gopinath, who previously served as IMF chief economist.

The IMF lowered its forecast for US growth by 1.2 percentage points due to the inability of US President Joe Biden to adopt a massive social and climate spending package, previous tightening of US monetary policy and continued supply shortages.

The US economy is now expected to grow by 4% in 2022 after expanding 5.6% in 2021, where growth is expected to slow further to 2.6% in 2023, the IMF said.

“We are certainly living in very turbulent times,” Gopinath said, adding that there was still a “huge 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 abundance in the financial markets and herald “a more orderly correction” as long as the Fed clearly communicates its policies.

The IMF downgraded China’s forecast by 0.8 percentage points to 4.8% in 2022 after a growth of 8.1% in 2021, where growth will rise again to 5.2% in 2023.

Syringes with needles are shown in front of a certain stock graph and the words “Omicron SARS-CoV-2” in this illustration taken on November 27, 2021. REUTERS / Dado Ruvic / Illustration / File Photo

Pandemic-induced disruptions related to China’s zero tolerance COVID-19 policy and prolonged economic stress among property developers prompted the downgrade, the IMF said.

The IMF also lowered its euro area forecast by 0.4 percentage points to 3.9% in 2022, saying growth there would slow to 2.5% 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 to grow 0.3% this year and Mexico 2.8%, while the region is expected to grow 2.4%, 0.6 percentage points below the previous forecast. Read more

India and Japan found that their forecasts were upgraded somewhat.

The IMF warned that the emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruption, while supply chain disruptions, energy price volatility and local wage pressures pose additional risks.

It revised its 2022 inflation forecasts for both advanced and developing economies, saying that increased price pressures are likely to last longer than previously expected due to ongoing supply chain disruptions and high energy prices.

It said inflation was expected to average 3.9% in advanced economies and 5.9% in emerging markets and developing economies in 2022 before slowing in 2023, helped by moderate growth in fuel and food prices during that period.

While economies continued to recover from the shock of the pandemic, the pace of recovery varied widely between rich and poorer countries, the IMF said.

While advanced economies are expected to return to the pre-pandemic trend this year, several emerging markets and developing economies are facing significant production losses, the IMF said.

Seventy million more people lived in extreme poverty after the pandemic, which put the progress in poverty reduction back by several years, Gopinath wrote in his blog.

The IMF said securing worldwide access to vaccines, tests and treatments was crucial to reduce the risk of further dangerous COVID-19 variants, while many countries would have to raise interest rates to stem inflationary pressures.

Gopinath noted that 60% of low-income countries were already in or at high risk of debt crisis, and called on the group of 20 to speed up debt restructuring processes and suspend debt service payments while the restructuring is being negotiated. Read more

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Reporting by Andrea Shalal and David Lawder; Edited by Andrea Ricci and Lisa Shumaker

Our standards: Thomson Reuters trust principles.

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