🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

IMF lowers global growth outlook as supply bottlenecks hobble pandemic recovery

Published 10/12/2021, 09:02 AM
Updated 10/12/2021, 01:26 PM
© Reuters. FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. REUTERS/Yuri Gripas

By David Lawder

WASHINGTON (Reuters) -Persistent supply chain disruptions and inflation pressures are constraining the global economy's recovery from the COVID-19 pandemic, the International Monetary Fund said on Tuesday as it cut growth outlooks for the United States and other major industrial powers.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9% from the 6.0% forecast it made in July. It left a 2022 global growth forecast unchanged at 4.9%.

"This modest headline revision, however, masks large downgrades for some countries," the IMF said in the report, adding that worsening pandemic dynamics have darkened the outlook for low-income developing economies, while wealthy countries are struggling with supply disruptions.

The IMF said it expects elevated inflation to subside to pre-pandemic levels in 2022.

But the IMF's chief economist, Gita Gopinath, signaled that the global lender is growing more concerned about persistent inflation, saying: "Central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery."

Gopinath, speaking in a virtual news conference, said policymakers needed to be "particularly vigilant" for signs that wage inflation is spreading more broadly from certain sectors and whether rising housing prices are contributing to a de-anchoring of inflation expectations.

But she cautioned against comparisons to 1970s-style "stagflation," noting that underlying demand was strong, and problems were mainly on the supply side.

Global manufacturing activity has been slammed https://www.reuters.com/business/global-economy-asian-factories-stagnate-chinas-slowdown-supply-constraints-hit-2021-10-01 by supply-demand mismatches and shortages of key components such as semiconductors, clogged ports and a lack of cargo containers, and a labor crunch as global supply chains optimized for efficiency remain in disarray after pandemic-induced shutdowns last year.

U.S. GROWTH SLOWDOWN

The United States is taking the brunt of these effects, and the IMF slashed its 2021 U.S. growth forecast by a full percentage point, to 6.0%, from 7.0% in July - a level that was seen as the strongest pace since 1984 https://www.reuters.com/business/imf-raises-us-2021-growth-forecast-7-fastest-pace-generation-2021-07-01.

U.S. growth could shrink further, the IMF said, because its forecasts assume a deeply divided U.S. Congress will approve President Joe Biden's proposed infrastructure and social spending worth $4 trillion over a decade. Lawmakers now are trying to achieve consensus on a smaller package, and the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

The report, which was issued at the outset of the IMF and World Bank fall meetings, also cut growth forecasts for other industrial economies. German growth was reduced by half a percentage point from the July forecast to 3.1% while Japan's growth was lowered 0.4 point to 2.4%.

The IMF's forecast for British growth this year fell only 0.2 point to 6.8%, giving it the fastest growth forecast among the G7 economies.

China's 2021 growth forecast was trimmed by 0.1 point to 8.0%, as the IMF cited a faster-than-expected scaleback of public investment spending. India's forecast was unchanged at 9.5%, but prospects in other emerging Asian countries have been diminished due to a worsening of the pandemic.

The IMF cut its forecast by 1.4 points for the "ASEAN-5" grouping of Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Some commodity-exporting countries such as Nigeria and Saudi Arabia saw modest growth upgrades due to higher oil and commodity prices.

VACCINE DIVIDE

The report also warned of a dangerous divergence in economic prospects fueled by "the great vaccine divide," with low-income countries, where 96% of the population remains unvaccinated, facing lower growth for longer periods, more poverty, and the prospect of de-anchored inflation expectations.

© Reuters. FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. REUTERS/Yuri Gripas

"About 65 million to 75 million additional people are estimated to be in extreme poverty in 2021 compared to pre-pandemic projections," the report said, adding that low-income countries largely in Africa needed some $250 billion in additional spending to fight COVID-19 and regain their pre-pandemic growth path.

Currently, these countries are forecast to have cumulative output next year that is 6.7% below pre-pandemic levels. Advanced economies, meanwhile, will have 2022 output nearly 1% above pre-pandemic levels, the IMF said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.