WASHINGTON (Reuters) – Persistent supply chain disruptions and inflationary pressures are hampering the recovery of the global economy after the COVID-19 pandemic, the International Monetary Fund said on Tuesday as it slashed growth prospects for the United States and other major industrial powers.
In its World Economic Outlook, the IMF reduced its global growth forecast for 2021 to 5.9% from the 6.0% forecast in July. He left a 2022 global growth forecast unchanged at 4.9%.
“This modest headline review, however, masks significant downgrades for some countries,” the IMF said in the report, adding that worsening pandemic dynamics have clouded the outlook for low-income developing economies, while rich countries are grappling with supply disruptions.
The IMF has said it expects high inflation to fall back to pre-pandemic levels in 2022.
But IMF chief economist Gita Gopinath has signaled that the global lender is increasingly concerned about the persistence of inflation, saying: “Central banks must be prepared to act quickly if the risks of rising prices. Inflation expectations are becoming more important in this unexplored recovery “.
Gopinath, speaking at a virtual press conference, said policymakers should be “particularly vigilant” of signs that wage inflation is spreading more widely in certain sectors and whether rising housing prices contributes to a de-anchoring of inflation expectations.
But she cautioned against comparisons to 1970s-style “stagflation”, noting that underlying demand was strong and the problems were mostly on the supply side.
Global manufacturing activity has been rocked by supply and demand mismatches and shortages of key components such as semiconductors, clogged ports and lack of freight containers, and a labor shortage. works as global supply chains optimized for efficiency remain in disarray after closures induced by the pandemic last year.
The United States is bearing the brunt of these effects, and the IMF reduced its 2021 U.S. growth forecast by one percentage point to 6.0%, from 7.0% in July – a level that was considered the fastest pace since 1984.
US growth could decline further, the IMF said, as its forecast assumes 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 reach consensus on a smaller package, and the IMF has said a significant reduction will reduce growth prospects for the United States and its trading partners.
The report, which was released at the start of the fall IMF and World Bank meetings, also lowered growth forecasts for other industrial economies. German growth was reduced by half a percentage point from July forecast to 3.1% while growth in Japan was lowered by 0.4 percentage point to 2.4%.
The IMF’s forecast for UK growth this year fell just 0.2 percentage points to 6.8%, making it the fastest growing forecast among G7 economies.
China’s growth forecast for 2021 has been revised down 0.1 point to 8.0%, with the IMF citing a faster-than-expected cut in public investment spending. India’s forecast remained unchanged at 9.5%, but the outlook in other emerging Asian countries was reduced due to a worsening pandemic.
The IMF cut its forecast by 1.4 percentage points for the “ASEAN-5” group of Indonesia, Malaysia, the Philippines, Singapore and Thailand.
Some commodity-exporting countries such as Nigeria and Saudi Arabia have seen modest improvements in growth due to rising oil and commodity prices.
The report also warned of a dangerous divergence in the economic outlook fueled by “the great vaccine divide”, with low-income countries, where 96% of the population remains unvaccinated, facing lower growth for more. long spells, more poverty and the prospect of – entrenched inflation expectations.
“It is estimated that an additional 65 million to 75 million people will be in extreme poverty in 2021 compared to pre-pandemic projections,” the report said, adding that low-income countries mainly in Africa needed to some $ 250 billion in additional spending to fight COVID-19 and return to their pre-pandemic growth path.
Currently, those countries are expected to have cumulative production next year 6.7% lower than pre-pandemic levels. Advanced economies, meanwhile, will have production in 2022 nearly 1% above pre-pandemic levels, the IMF said.