IMF slashes global growth outlook, warning of supply disruptions and spike in inflation

Soaring inflation and supply chain disruptions hamper the global economy economic recovery of the coronavirus pandemic, warned the International Monetary Fund on Tuesday.

The Washington-based IMF forecast in its latest World Economic Outlook that global gross domestic product would rise 5.9%, 0.1 percentage point lower than its July estimate. The IMF expects global growth to hold steady at 4.9% next year.

“Pandemic epidemics in critical links in global supply chains have resulted in longer-than-expected supply disruptions, fueling inflation in many countries,” said Gita Gopinath, chief economist at the IMF, wrote in an accompanying blog. “Overall, the risks to the economic outlook have increased and political compromises have become more complex.”

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The impact of the supply disruption on GDP is even more pronounced in advanced economies, the IMF said, including in the United States. The organization reduced its growth estimates for the United States to 6%, down one percentage point from July. This is the largest reduction suffered by a G7 country. The IMF also reduced its growth prospects for Spain and Germany by 0.5 percentage point and lowered that of Canada by 0.6 percentage point.

The downward revision reflects an increase in COVID-19 infections due to the highly contagious delta variant, supply chain constraints that have led to shortages around the world and the subsequent spike in inflation – all of which have weighed on economic growth.

“Delta’s rapid spread and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome,” the report said. “Policy choices have become more difficult, facing multidimensional challenges – moderate job growth, rising inflation, food insecurity, declining human capital accumulation and climate change – with limited room for maneuver. “

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Inflation has accelerated as the economy recovers from the brief but extremely severe recession of last year.

Consumer prices have risen dramatically in recent months, an increase that Federal Reserve Chairman Jerome Powell attributed to pandemic-induced disruptions in the supply chain, a shortage of workers that has made soaring wages and a wave of repressed consumers with stimulus measures. cash.

In the United States, consumer prices jumped 5.4% in July from a year earlier, the largest jump since August 2008, according to the Department of Labor’s consumer price index. Prices cooled slightly in August, but remained high at 5.3% from the previous year.

The surge in inflation has increased pressure on the Federal Reserve to tighten the super-easy monetary policy put in place during the pandemic, although President Jerome Powell has maintained it is likely transient.

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“While central banks can generally look through transient inflationary pressures and avoid tightening until underlying price dynamics are clearer, they must be prepared to act quickly if the recovery strengthens faster than it does. forecast or if the risks of a rise in inflation expectations become tangible, ”according to the IMF. noted.

Overall, the IMF expects the world’s advanced economies to grow 5.2% this year, compared to an average growth forecast of just 3% for low-income countries.

“These discrepancies are a consequence of the ‘great vaccine divide’ and large disparities in political support,” Gopinath said. “While over 60% of the population in advanced economies is fully immunized and some are now receiving boosters, around 96% of the population in low-income countries is still unvaccinated.”