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IMF cuts growth forecast as supply disruptions, Covid pandemic weighs

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One man walks past a poster from the Annual World Bank Group/International Monetary Fund Meetings October 11th, 2021 in Washington DC.

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Although the International Monetary Fund now has a less positive outlook for the world’s economy in 2021, it still expects moderate growth over the medium-term. 

In its World Economic Outlook, published Tuesday, the Fund said it expects global gross domestic product to grow by 5.9% this year — 0.1 percentage point lower than its July estimate. IMF maintains its projection of global growth at 4.9% for the next year.

This year’s revised outlook is due to supply chain problems in advanced countries and worsening healthcare in emerging nations.

Gita Gupinath, the chief economist of IMF said that this modest headline revision “masked large downgrades in some countries,” she wrote in an accompanying blog post.

The worsening dynamics of pandemics has made the outlook for low-income countries more bleak. In part, supply disruptions and worsening pandemic dynamics also contributed to the downgrade.

This is the situation of one country: the United States has been cut by the IMF’s growth forecasts for this year, from 1% to 6%. Canada had its outlook for growth cut by 0.6 percentage point, with Spain and Germany seeing theirs reduced by 0.5 percentage points.

The IMF predicts that global growth will be moderate beyond 2022.

Recovery gap

According to the IMF, it is particularly worried about how different recovery rates are being achieved in emerging and advanced economies. 

The estimates indicate that advanced economies might surpass their prepandemic levels of 2024 while developing countries (excluding China) could stay 5.5% below their forecast.

Gopinath explained that the divergences result from the ‘great vaccination divide’ and disparities in support policy.

“Over 60% are fully vaccinated in advanced countries, while some receive booster shots. But 96% remain unvaccinated in low income countries.”

Inflation

Due to supply disruptions and high commodity prices, including gas, consumer prices have increased substantially in the past few months.

The consumer price index in the U.S. is presently 4.25%. rose 5.4% in July from a year earlier — matching the largest jump since August 2008 — before easing slightly in August. In the meantime, inflation reached a 13-year highIn September

This inflation is putting more pressure on the central banks to reduce their monetary stimulus programs faster than expected.

The Fund’s report warned that inflation risks could be skewed towards the upside if supply-demand mismatches caused by pandemics last longer than anticipated.

Accordingly, IMF warns that although central banks are able to manage temporary inflation pressures and not tighten until the dynamics of the price structure is clearer, they need to be ready for immediate action if recovery accelerates or rising inflation expectations materialize.

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