The continuing global recovery faces multiple challenges as the pandemic enters its third year. Find out how this will affect global growth in our new World Economic Outlook video. https://t.co/XIAa9fVOTt #WEO pic.twitter.com/109TkT1WcL
— IMF (@IMFNews) January 25, 2022
Rising energy prices and supply disruptions have also resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies.
USA and China
The revision is largely a result of forecast markdowns in the two largest economies, the United States and China.
For the US, the institution is removing the Build Back Better fiscal policy package from their calculations, after the legislation stalled in Congress. It is also accounting for the end of stimulus, and continued supply shortages.
Because of all these factors, the economy should grow 4 per cent this year, less 1.2 percentage-points than initially forecasted.
In China, the ongoing retrenchment in the real estate sector, slower-than-expected recovery of private consumption, and pandemic-induced disruptions related to the zero-tolerance COVID-19 policy, have induced a 0.8 percentage-point downgrade.
Inflation and 2023
For 2023, IMF is expecting global growth to slow down to 3.8 per cent.
The number is 0.2 percentage points higher than estimated before, reflecting an expected pickup, after current drags on growth dissipate in the second half of 2022.
The forecast assumes that adverse health outcomes will decline to low levels in most countries by the end of the year, assuming vaccination rates improve worldwide, and therapies become more effective.
On the other hand, high inflation is expected to persist for longer than envisioned, with ongoing supply chain disruptions and high energy prices continuing throughout the year.
The indicator should gradually decrease as supply-demand imbalances get corrected along the year and monetary policy in major economies responds.
In its update, the IMF warns that new variants could prolong the pandemic and induce renewed economic disruptions.