IMF cuts global growth forecast amid supply chain disruptions and pandemic pressures

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WASHINGTON – Supply chain disruptions and global health concerns have prompted the International Monetary Fund to lower its growth forecast for the global economy in 2021, while the group has raised its inflation outlook and put guard against the risks of rising prices.

In the IMF’s latest World Economic Outlook report, released on Tuesday, economists cited the spread of the Covid-19 Delta variant and said the main policy priority is to vaccinate a sufficient number of people in each country. to avoid dangerous mutations of the virus. They stressed the importance for major economies to keep their promises to provide vaccines and financial support for international immunization efforts before new variants derail a fragile recovery.

“Policy choices have become more difficult … with limited room for maneuver,” IMF economists said in the report, which is released twice a year, with two additional updates.

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Raising its inflation outlook, the group urged policymakers to stand ready to take swift action if the recovery strengthens faster than expected or if inflation risks escalate. Prices from food to medicine to vehicles have risen around the world, threatening the global recovery after the pandemic wiped out businesses and jobs.

The IMF, a group of 190 member countries, promotes international financial stability and monetary cooperation. It also acts as a lender of last resort to countries in financial difficulty.

The IMF lowered its global growth forecast for 2021 to 5.9% from 6% in its July report, due to a reduction in its projection for advanced economies to 5.2% from 5.6%. The reduction mainly reflected issues with a global supply chain that caused a mismatch between supply and demand.

For emerging markets and developing economies, the outlook has improved. The growth of these economies is set at 6.4% for 2021, against an estimate of 6.3% in July. The increase reflects the stronger performance of some commodity-exporting countries amid rising energy prices.

The group maintains its view that global growth will slow to 4.9% in 2022.

Among the main economic factors, the growth outlook for the United States has been reduced by 0.1 percentage point to 6% this year, while the projection for China has also been reduced by 0.1 percentage point to 8%. Several other major economies have seen their prospects reduced, including Germany, whose economy is now expected to grow 3.1% this year, down 0.5 percentage points from its July forecast. The outlook for Japan was lowered by 0.4 percentage point to 2.4%.

While the IMF maintains the view that inflation will return to pre-pandemic levels by mid-2022, it also warns that the negative impact of inflation could be further accentuated if market disruptions. the supply chain linked to the pandemic proved to be more damaging and longer. -durable. This could lead to an anticipated tightening of monetary policy by central banks, hampering the recovery.

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IMF economists say the outlook for inflation is “very uncertain” due to the unprecedented nature of the current recovery. Despite the upward revision of its price projections, the forecast of a return of inflation to pre-pandemic levels rests on an abundant supply of labor in advanced economies which should weigh on wages. .

IMF economists warn, however, that certain factors could add to persistent inflationary pressures. Among them: a housing shortage which drives up real estate prices and rents upstream of new construction. Rising import prices for food and oil will also keep consumer prices high in emerging and developing countries. Prolonged supply disruptions could also push companies to raise prices, leading to greater demand for wage increases from workers.

“If households, businesses and investors begin to anticipate that price pressure from pent-up demand … persists, there is a risk that medium-term inflation expectations will drift upwards and lead to a further rise. self-fulfilling prices, ”wrote IMF economists. . They added that, as of yet, there is “no sign of such a change.”

Supply shortages caused by logistics bottlenecks, combined with consumers’ appetites for goods, have caused consumer prices to rise rapidly in the United States, Germany and many other countries, according to the IMF.

Rising food prices have placed a particularly heavy burden on households in the poorest countries. The IMF’s food and drink price index rose 11.1 percent between February and August, with meat and coffee prices increasing by 30 percent and 29 percent, respectively.

The annual meetings of the World Bank and the International Monetary Fund begin this week in Washington.


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daniel slim / Agence France-Presse / Getty Images

The IMF now expects consumer price inflation in advanced economies to reach 2.8 percent in 2021 and 2.3 percent in 2022, up from 2.4 percent and 2.1 percent, respectively, in its July report. Inflationary pressure is even more pronounced in emerging and developing economies, with consumer prices rising 5.5% this year and 4.9% next year.

“Although monetary policy can generally cope with transient increases in inflation, central banks must be prepared to act quickly if the risks of rising inflation expectations become greater in this unexplored recovery,” he said. writes Gita Gopinath, economic adviser and research director at the IMF. The report.

While rising commodity prices have supported some emerging and developing economies, many of the world’s poorest countries have been left behind as they struggled to gain access to the vaccines needed to open up their economies. More than 95% of people in low-income countries are still unvaccinated, in contrast to the vaccination rate of nearly 60% in rich countries.

IMF economists have urged major economies to provide ample liquidity and debt relief to poorer countries with limited political resources. “The dangerous divergence in economic prospects between countries remains a major concern,” Ms. Gopinath said.

Write to Yuka Hayashi at [email protected]

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