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IMF Warns of Rising Risks to Global Economy By TipRanks

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© Reuters. IMF warns about rising risks to global economy

As it reduced its growth forecasts to 2022, the International Monetary Fund raised concerns about growing risks in the global economy.

This week’s bi-annual publication of the World Economic Outlooks, a Washington-based financial institution, projects that there will be 5.9% global growth by 2021 and 4.9% 2022.

That’s 0.1% lower for 2021 than in the July forecast due to the growing risks of supply chain disruptions, and the worsening of the pandemic. (See Insiders’ Hot Stocks on TipRanks)

“This is partially offset by stronger near-term prospects among some commodity-exporting emerging market and developing economies,” says the report. Rapid spread of Delta, and new threats to the virus have created uncertainty as to how fast the pandemic will be remediated. Policy choices have become more difficult, with limited room to maneuver.”

The central bankers are faced with a dilemma. Rising inflation is one thing, but economic slowdown is another. This has led to fears that stagflation will return.

This is especially true in the U.S. where disruptions to supply chains are combined with labor shortages resulting from tighter immigration and declining participation of women in the labor force and early generous government benefits which favor non-market activities over those that are market.

For example, on Friday the U.S. Bureau of Labor Statistics announced that September saw just 194,000 jobs added to the economy. This is far below the 500,000 expected jobs market.

That’s terrible news for U.S. economic growth, as more deficient job creation means lower income growth, lower consumer spending, and eventually lower GDP growth.

In the meantime, both U.S. government agencies as well as private companies have seen substantial price gains. According to market projections, September 2021 saw inflation expectations rise by 5.3%. That’s the 11th month in a row. The September report also helped to increase the average three-year future inflation from 4% to 4.2%.

The Federal Reserve and economists closely track inflation expectations in order to identify whether or not it will be permanent. Inflationary pressures are decreasing when inflationary expectations decrease. However, rising inflationary expectations can be a sign of inflationary pressures increasing.

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