Tatsat Chronicle Magazine

Amid Omicron And Inflation, IMF Cuts World Growth Forecasts

The world economy will grow less than expected mainly due to the slowdown and coronavirus, predicts IMF
January 26, 2022
Food Inflation

The world economy will grow less than expected this year, mainly due to a slowdown in the world’s two biggest economies i.e. the United States and China, while global inflation will be higher and more persistent, according to the latest forecasts from the International Monetary Fund (IMF), published on January 25, 2022.

The IMF expects global growth to slow down to 4.4% this year from nearly 6% in 2021. The half a percentage point cut in the 2022 growth outlook — the IMF forecast in October the global output would expand by 4.9% this year — is a result of dimmer economic prospects in the United States and China, the world’s largest economies.

“In the case of the United States, this reflects lower prospects of legislating the Build Back Better fiscal package, an earlier withdrawal of extraordinary monetary accommodation and continued supply disruptions,” Gita Gopinath, first deputy managing director of the IMF, said in a blog. “China’s downgrade reflects continued retrenchment of the real estate sector and a weaker-than-expected recovery in private consumption.”

The report also expects the rapid rise in global fuel prices to slow down during 2022-2023, which will help contain headline inflation.

In this respect, the report points to the futures markets indication that oil prices will rise about 12 percent and natural gas prices about 58 percent in 2022, both considerably lower than the increases seen in 2021, before declining in 2023 as supply-demand imbalances ease further.

Moreover, the report predicts food prices will edge up at a more moderate pace of about 4.5 percent in 2022 and decline in 2023

The report also expects global trade to recede in 2022 and 2023, in line with the overall pace of expansion.

Assuming that the pandemic eases over 2022, supply chain problems are expected to abate later in 2022, with moderation in global goods demand would help reduce imbalances.

The report expects cross-border services trade, particularly tourism, to remain subdued.