WASHINGTON, DC — The
Omicron variant of COVID-19 is creating an obstacle course for the global economy, which will slow growth this year, notably in the world's two largest economies, the IMF said Tuesday.
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The Washington-based crisis lender cut its
world GDP forecast for 2022 to 4.4 percent, half a point lower than the October
estimate, due to the "impediments" caused by the latest outbreak,
although those are expected to begin to fade in the second quarter of the year.
"The global economy enters 2022 in a
weaker position than previously expected," the
International Monetary Fund said in the quarterly update to its World Economic Outlook, adding that
"the emergence of the Omicron variant in late November threatens to set
back this tentative path to recovery."
The outlook remains beset by risks,
including geopolitical tensions and a wave of price increases hitting consumers
and businesses that is expected to last longer than previously expected.
After the solid recovery last year when the
global economy grew an estimated 5.9 percent, the IMF cut projections for
nearly every country — with India a notable exception — but it was the
downgrades to the United States and China that had the biggest impact.
"These impediments are expected to
weigh on growth in the first quarter of 2022," the report said.
"The negative impact is expected to
fade starting in the second quarter, assuming that the global surge in Omicron
infections abates and the virus does not mutate into new variants that require
further mobility restrictions."
The fund once again stressed that
controlling the pandemic is critical to the economic outlook and urged
widespread vaccinations in developing nations, which have fallen short even as
advanced economies have moved to deploying booster shots among their already
highly-vaccinated populations.
"Bold and effective international
cooperation should ensure that this is year the world escapes the grip of the
pandemic," Gita Gopinath, the fund's newly-installed first deputy managing
director, told reporters.
She said the cumulative economic losses
inflicted by the pandemic over five years are expected to total nearly $14
trillion through 2024, compared to the pre-pandemic forecasts.
US, China slowdown
The biggest drag on the global outlook is
the sharp slowing in the United States and
China, including factors beyond the
impact of the virus.
With US President
Joe Biden's massive social
spending plan stalled in Congress, the IMF subtracted the expected growth
impact the program would have had on the economy.
Together with the supply chain snarls that
have beset American businesses and manufacturing, these factors slashed 1.2
percentage points off GDP, which is now expected to expand four percent this
year, the IMF said.
While that is a historically high rate
for the world's largest economy, it is far slower than the 5.6 percent expansion
in 2021.
Meanwhile, China's "zero-tolerance COVID-19
policy" has contributed to the slowdown in the Asian power, and the fund
cut 0.8 points off expected growth for this year to 4.8 percent, the report
said.
"China's downgrade reflects continued
retrenchment of the real estate sector and weaker than expected recovery in
private consumption," Gopinath said
Other major economies suffered sharp
downgrades amid the ongoing pandemic disruptions, including a 0.8-point cut for
Germany, and 1.2-point deductions for Brazil and Mexico.
India, however, saw a 0.5-point upgrade to
nine percent, Japan saw a more modest improvement for growth of 3.3 percent,
the IMF said.
The outlook for 2023 is somewhat improved,
"however not enough to make up ground lost due to the downgrade to
2022."
Inflation flares, rates rise
A key challenge facing the
global economy is
the surge in prices, especially energy and food.
The phenomenon is expected to bring more
aggressive action by key central banks like the
US Federal Reserve, which will
raise borrowing costs worldwide, hindering recovery efforts, particularly
in indebted developing nations.
"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.
If "the pandemic eases its grip"
and energy price increases moderate, "inflation should gradually decrease
as supply-demand imbalances wane in 2022 and monetary policy in major economies
responds."
The WEO baseline assumes the Fed will hike
the benchmark interest rate three times this year and three in 2023.
But Gopinath cautioned that "higher
inflation surprises in the US could elicit aggressive monetary tightening by
the Federal Reserve and sharply tightening global financial conditions."
Inflation is expected to average 3.9 percent
in advanced economies and 5.9 percent in emerging market and developing
economies in 2022, before subsiding in 2023.
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