Wed | May 31, 2023

Amid omicron and inflation, IMF cuts world growth forecasts

Published:Wednesday | January 26, 2022 | 12:09 AM
The  International Monetary Fund headquarters building in Washington.
The International Monetary Fund headquarters building in Washington.

The International Monetary Fund, IMF, is downgrading its forecast for the world economy this year, citing the spread of COVID-19’s omicron variant, higher energy prices, an uptick in inflation and a deteriorating outlook for the world’s two biggest economies – the United States and China.

The 190-country lending agency now forecasts the global economy will expand 4.4 per cent in 2022. That’s down from an estimated 5.9 per cent last year and from the 4.9 per cent the IMF was forecasting for 2022 back in October.

The IMF slashed the growth forecast for the United States – world’s largest economy – to 4.0 per cent from the 5.2 per cent it predicted in October. The agency no longer expects any economic stimulus from President Joe Biden’s Build Back Better social policy bill, which has stalled in Congress.

The US economy is also contending with supply-chain bottlenecks that prevent companies from filling customer orders, and with the Federal Reserve’s impending move to raise interest rates to cool off the hottest year-over-year inflation in four decades.

The Chinese economy is forecast to grow 4.8 per cent this year – down from 8.1 per cent last year and 0.8 percentage point slower than the IMF expected in October. China’s zero-tolerance approach to COVID is likely to take an economic toll as is financial stress on the country’s property developers, according to the agency.

The IMF expects the 19 European countries that share the euro currency to collectively grow 3.9 per cent this year, down from 5.2 per cent in 2021. Japan is forecast to register 3.3 per cent growth this year, up from 1.6 per cent last year, as a result of continuing government support for the economy.

The IMF expects inflation to accelerate this year and fade in 2023. It sees consumer prices rising 3.9 per cent in advanced economies, the highest since 1991 and up sharply from the 2.3 per cent the IMF forecast in October. And it sees 5.9 per cent inflation this this year and developing and emerging economies, highest since 2011 and up from the 4.9 per cent forecast in October.

The IMF expects inflation to slow next year to 2.1 per cent in advanced economies and 4.7 per cent in developing markets.