IMF WEO Expects Sluggish Global Economic Growth in 2022
Rising cases of the omicron variant and surging prices will have a depressing effect on the world economy early in 2022, cutting growth estimates for the full year significantly from expectations just three months ago, the International Monetary Fund said Tuesday in the most recent update to its World Economic Outlook (WEO).
“The global economy enters 2022 in a weaker position than previously expected,” the IMF said.
“As the new omicron COVID-19 variant spreads, countries have re-imposed mobility restrictions. 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.”
The IMF was hopeful, however, that actions by central banks and reduced demand will alleviate those pressures. “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,” the IMF said.
“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 forecast for World Output growth in 2022 was revised down to 4.4% from 4.9% in the October estimate, while the outlook for 2023 stands at 3.8%, up from 3.6% in the previous report. World growth is estimated to have been 5.9% for the 2021.
The US economy is now expected to expand by 4% in 2022, a sharp downward adjustment from the 5.2% increase previously estimated, followed by 2.6% growth in 2023. The US economy is estimated to have expanded by 5.6% in 2021.
“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 IMF said.
Growth in the Euro Area is expected to slow to 3.9% in 2022 from 5.2% in 2021, revised down from 4.3% in the October estimate. The IMF sees 2.5% growth for 2023.
UK growth for those same years is forecast to be 4.7% in 2022, down from 5% in the October estimate, followed by a 2.3% pace in 2023. The UK economy grew by 7.2% in the 2021 according to IMF estimates.
The economy of Canada is expected to grow by 4.1%, lower than the 4.9% gain expected in the October estimate and followed by 2.8% increase in 2023. The Canadian economy grew by 4.7% in 2021.
Despite expectations of slower growth, the IMF noted that central banks will still need to focus on inflation as major headwind and tighten policy. At the same time, governments need to be vigilant that the recovery from the pandemic has not been uniform and supply assistance as needed.
“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 prioritize health and social spending while focusing support on the worst affected,” the IMF said.
“In this context, international cooperation will be essential to preserve access to liquidity and expedite orderly debt restructurings where needed.” #IMF WEO Expects Sluggish Global Economic Growth in 2022.
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