Coronavirus outbreaks, poor vaccine access, weak policy pushes IMF to downgrade global economic outlook


By Jess MaSu-Lin Tan

“Faultlines” in global economies caused by the coronavirus pandemic have persisted and recoveries have been “hobbled” by Delta variant outbreaks, the International Monetary Fund (IMF) said as it cut its worldwide growth forecast for the year.

Periodic coronavirus outbreaks, poor vaccine access and weak government policy support in certain parts of the world contributed to the IMF being forced to predict the global economy will grow by 5.9 per cent this year – down from a prediction of 6 per cent made in July. It did keep the forecast growth rate of 4.9 per cent in 2022 unchanged.

In its latest “World Economic Outlook” report released on Tuesday, the IMF also marked down its forecast growth rate for China to 8 per cent this year from the 8.1 per cent growth predicted in its July forecast.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions
Gita Gopinath

“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” said IMF chief economist Gita Gopinath.

“The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.

“The dangerous divergence in economic prospects across countries remains a major concern.”

And while there were outliers, including commodity exporters meeting demand for raw materials in fast recovering countries like China, pandemic-related disruptions to “contact-intensive sectors” such as tourism have hurt workers and jobs, the IMF said.

Governments in some countries are struggling to balance a raft of policies to tackle worsening problems in areas like employment growth and rising inflation.

“Overall, if Covid-19 were to have a prolonged impact into the medium term, it could reduce global [gross domestic product] by a cumulative US$5.3 trillion over the next five years relative to our current projection,” the IMF report added.

One of the key concerns for some economies, including the United States and some emerging markets, is high inflation risks, according to the IMF, with the situation set to get worse if supply and demand mismatches continue.

Demand in recovering economies has risen quickly, but supply bottlenecks and shortages due to border closures and lockdowns have slowed supply, economists said.

Strong pent-up demand as economies reopen from the Covid-19 shock makes the current recovery unusual
John Zhu

“Vivid images of cargo ships unable to dock and panic buying of petrol are front page news. Surveys of US and European firms show stocks of finished goods are at their lowest levels relative to current demand since the data began,” said John Zhu, senior global economist at securities and investment firm Haitong Securities.

“Unsurprisingly, higher consumer price inflation has persisted, reaching 5.3 per cent in the US and 3.4 per cent in the Euro area, the highest rates in over a decade.

“Strong pent-up demand as economies reopen from the Covid-19 shock makes the current recovery unusual.”

The IMF warned the current vaccination rate inconsistencies across countries could also worsen the supply and demand mismatch, and it predicts price pressures on food, oil and housing will persist into 2022 for some developing economies.

Central banks will also have to be alert to tailor monetary policy changes in an effort to tackle any economic shifts.

“Although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible,” the IMF said in its outlook.

“In settings where inflation is rising amid still-subdued employment rates and risks of expectations de-anchoring are becoming concrete, monetary policy may need to be tightened to get ahead of price pressures, even if that delays the employment recovery.”

The IMF warned “faster-than-anticipated” monetary normalisation in developed countries could also lead to a rapid repricing of financial assets.

Rising political tensions could lead to scientific decoupling, with detrimental effects on innovation capacity and global economic growth
IMF report

While the global economy remained unstable, the IMF also cautioned against a US-China scientific decoupling.

“The technological trajectories of China and the United States have been closely linked in the past two decades. Rising political tensions could lead to scientific decoupling, with detrimental effects on innovation capacity and global economic growth,” the report concluded.

US-China trade and technology tensions are potential roadblocks to global recovery, the IMF said, as it called for trade cooperation between countries and the use of the World Trade Organization as a platform for dispute resolution.

Overall, international efforts to increase vaccination numbers were necessary to ensure global economic recovery, the IMF said.

More from South China Morning Post:

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

SCMP , Coronavirus , IMF

   

Next In Aseanplus News

Filipino journalist Ressa, this year's Nobel laureate, urges reporters to defend their rights
US imposes arms embargo on Cambodia over China, human rights concerns
Singapore urges Myanmar's junta to swiftly implement Asean's five-point consensus
EU draft rules for gig workers target Uber, Deliveroo, online platforms
PM: Over 190,00 families surveyed to gauge their 'happiness' with government's 100-day performance
KLCI back above 1,500-level on last-minute buying
Indian farmers call off lengthy protest after govt assurances
PM: Reopening of country’s economy due to success of Covid-19 immunisation programme in collaboration with Mosti
China's Kaisa kicks off US$12bil debt restructuring after missing pay date
100-day report card: Cabinet’s overall performance stands at 90%, says PM

Others Also Read


Vouchers