A closer look at IMF's latest global growth forecast report


The International Monetary Fund in its World Economic Outlook trimmed its 2021 global growth forecast to 5.9% from the 6.0% forecast it made in July. It left a 2022 global growth forecast unchanged at 4.9%. Beyond 2022, global growth is projected to moderate to about 3.5% over the medium term. The ongoing rise in inflation is expected to be transitory, though uncertainty remains high.

The IMF pointed to continuing supply chain disruptions and pricing pressures that continue harming the global economy's recovery from the Covid-19 pandemic and cut growth outlooks for the United States and other major industrial powers.

The IMF said in the report that modest headline revision masks large downgrades for some countries, as the outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.

Global manufacturing activity has been slammed by shortages of key components such as semiconductors, congested ports, and a lack of cargo containers, and a labor crunch as global supply chains optimized for efficiency have struggled to return to normal after pandemic-induced shutdowns last year.

Demand-supply mismatches, fueled in part by excess savings built up in wealthy countries, have driven up prices, causing spikes in inflation. The IMF said it expects inflation to return to pre-pandemic levels next year but warned that persistent supply disruptions would risk increased price pressures.

The IMF slashed its 2021 growth forecast for the United States by 1%, to 6.0%, from 7.0% in July - a level that was seen as the strongest pace since 1984, as the United States is taking the biggest impact of these effects

The IMF expects that US growth could shrink further because its forecasts assume that a deeply divided US Congress will approve President Joe Biden's proposed infrastructure and social spending worth $4 trillion over a decade.

Lawmakers are now trying to achieve consensus on a smaller package, and the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

The report, which was issued at the outset of the IMF and World Bank fall meetings, also cut growth forecasts for other industrial economies.

German growth was reduced by 0.5% from the July forecast to 3.1% while Japan's growth was lowered 0.4% to 2.4%.

The IMF's forecast for Great Britain's growth this year fell only 0.2% to 6.8%, giving it the fastest growth forecast among the G7 economies.

The Asian outlook for 2021 has been downgraded by more than 1% to 6.5%, compared with the World Economic Outlook from April, because of new peaks of the pandemic cycle driven by the highly contagious Delta variant of coronavirus. As vaccination rates accelerate, the region is expected to grow slightly faster in 2022 than anticipated earlier.

Although Asia / Pacific region remains the fastest growing in the world, the divergence between Asian advanced economies and emerging market and developing economies is deepening, reflecting vaccination coverage and policy support, and medium-term output levels in emerging market and developing economies are expected to remain below pre-pandemic trends.

Risks remain shifted to the downside, mainly due to uncertain pandemic dynamics, vaccine efficacy against virus variants, supply chain disruptions, and potential global financial spillovers from US monetary normalization in the presence of domestic financial vulnerabilities.

China's 2021 growth forecast was trimmed by 0.1% to 8.0%, as the IMF cited a faster-than-expected scale back of public investment spending.

India's forecast was unchanged at 9.5%, but prospects in other emerging Asian countries have been diminished due to a worsening of the pandemic.

The IMF cut its forecast by 1.4% for the "ASEAN-5" grouping of Indonesia, Malaysia, the Philippines, Singapore, and Thailand, while some commodity-exporting countries such as Nigeria and Saudi Arabia saw modest growth upgrades due to higher oil and commodity prices.

The report also warned of a dangerous divergence in economic prospects fueled by the great vaccine divide, with low-income countries, where 96% of the population remains unvaccinated, facing lower growth for longer periods, more poverty, and the prospect of de-anchored inflation expectations.

About 65 to 75 million additional people are estimated to be in extreme poverty in 2021, compared to pre-pandemic projections, the report said, pointing that low-income countries needed some $250 billion in additional spending to fight coronavirus and return to their pre-pandemic growth path.

This article was submitted by Windsor Brokers.