"The world economy is entering 2022 weaker than previously expected," the International Monetary Fund said in a statement on economic forecasts for the new year. Pandemic, inflation and climate crisis will determine global growth, according to a report by the International Monetary Fund (IMF).
Restrictions imposed by states due to the spread of the new Omicron variant of the coronavirus are leading to rising energy prices and supply chain disruptions. These in turn lead to higher-than-expected inflation, both in the US and in emerging economies. The continuing decline in China's real estate sector and the slower-than-expected recovery in private consumption have further limited growth prospects.
Global access to vaccines, tests and treatments are essential to reducing the risk of other dangerous coronavirus variants. This requires an increase of supplies as well as fairer int'l distribution.
Global growth is expected to slow from 5.9% in 2021 to 4.4% in 2022. The forecast is down half a percent from the IMF forecast in October, largely reflecting the indicators of the two largest economies, the US and China at 1.2% and 0.8% respectively.
Global growth is expected to slow to 3.8% in 2023. The forecast depends on health outcomes, assuming vaccination rates will improve and more effective measures will be taken by most countries by the end of 2022.
Rising inflation is expected to remain longer than forecast in the IMF's October forecast, as supply chain barriers and high energy prices continue into 2022. As inflation expectations remain stable, it is projected to start gradually declining as supply-demand balances return in 2022 and monetary policy in major economies begins to respond.
The emergence of new variants of the coronavirus could prolong the pandemic and cause another economic disruption, it is predicted. In addition, disruptions in the supply chain, volatile energy prices and local wage pressures mean increased uncertainty about inflation and government policies.
As advanced economies remove interest rate policies, risks to financial stability, capital and foreign exchange flows of emerging economies may arise, especially as lending levels have risen sharply over the past two years.
Other global risks may arise as geopolitical tensions remain high, and the ongoing climate crisis means that the likelihood of major natural disasters remains high.
As the pandemic continues, the emphasis on an effective global health strategy is more necessary than ever, according to forecasts. Global access to vaccines, tests and treatments are essential to reducing the risk of other dangerous coronavirus variants. This requires an increase of supplies as well as fairer international distribution.
Monetary policy in many countries needs to continue to be tight to reduce inflationary pressures, while fiscal policy, which has a more limited scope than before the pandemic, will need to prioritize health and social spending, and also focus on those who experience the consequences in the worst way. In this context, international cooperation is crucial to maintain access to liquidity and accelerate debt restructuring where needed. Investing in climate policy remains an urgent need to reduce the risk of catastrophic climate change, the IMF concludes.