The International Monetary Fund has sharply cut its growth forecast for 2022 with a warning that higher-than-expected inflation and the Omicron variant have worsened the outlook for the global economy.
In a quarterly update to predictions made in October 2021, the IMF said it anticipated growth of 4.4% this year – down 0.5 percentage points – and emphasised the risks were of a weaker performance.
Gita Gopinath, the IMF’s economic counsellor, said that as a result of Covid-19 the global economy would be $13.8t smaller by 2024 than it would have been had its pre-pandemic trend continued.
The Washington-based organisation blamed the downgrade on rising cost pressures and the rapid spread of Omicron, and said while the 2022 outlook was markedly worse for the world’s two biggest economies – the US and China – few countries would be spared a slowdown.
The UK is expected to grow by 4.7% in 2022, a cut of 0.3 points to the IMF’s forecast in its October 2021 World Economic Outlook. Despite the reduction, the IMF anticipates the UK growing faster this year than the other six members of the G7 industrial nations – the US, Japan, Germany, France, Italy and Canada. Gopinath said there was a case for the government providing “well-targeted support to highly vulnerable” UK households facing rocketing energy bills this spring.
After recent stock market volatility, Gopinath said she would expect to see corrections in share prices as global interest rates went up this year, but said these should be “orderly” provided central banks communicated the thinking behind their decisions. An escalation of the tension between Russia and Ukraine would give an added twist to already high global energy costs, she predicted.
In its updated WEO, the IMF said bottlenecks had shaved between 0.5% and 1% off global growth in 2021.
“Meanwhile, inflation has been higher and more broad-based than anticipated, particularly in the US. Adding to these pressures, the retrenchment in China’s real estate sector appears to be more drawn out, and the recovery in private consumption is weaker than previously expected.”
The IMF publishes its world economic outlook each April and October, with updates in January and July. After pencilling in 2022 world growth of almost 5% in October, it has now cut its baseline forecast for every G7 country apart from Japan.
The biggest downgrade has been to the US – where the IMF’s growth forecast has been shaved by 1.2 points to 4%, but there were also cuts of 0.8 points for Germany and Canada, and 0.4 points for France and Italy. China’s growth forecast has been reduced by 0.8 points to 4.8%.
“Risks to the global baseline are tilted to the downside,” the IMF said. “The emergence of new Covid-19 variants could prolong the pandemic and induce renewed economic disruptions. Moreover, supply chain disruptions, energy price volatility, and localised wage pressures mean uncertainty around inflation and policy paths is high.”
The IMF used the update to repeat its call for more equal vaccine coverage, noting the fully vaccinated share of the population was about 70% for high-income countries, but below 4% for low-income countries. It set a target of vaccinating 40% of the world’s population by the end of 2021 but this was missed in 86 countries.
“With the pandemic continuing to maintain its grip, the emphasis on an effective global health strategy is more salient than ever. Worldwide access to vaccines, tests, and treatments is essential to reduce the risk of further dangerous Covid-19 variants.”
The IMF said its forecasts were based on Covid-19 health problems declining to low levels by the end of 2022, a pickup in vaccination rates and therapies becoming more effective.
