IMF Says Global Economic Recovery Momentum Weakened

The International Monetary Fund on Tuesday said the global economic recovery is continuing, but the momentum has weakened due the resurgence of the Covid-19 pandemic triggered by the Delta variant.

In its latest World Economic Outlook report, the global lender retained its 4.9 percent global growth projection for next year, while it lowered the forecast for this year to 5.9 percent from 6.0 percent predicted in July.

The IMF attributed the downward revision for this year to a downgrade for advanced economies, partly due to supply disruptions, and for low-income developing countries, largely due to worsening pandemic dynamics.

This is partially offset by stronger near-term prospects among some commodity-exporting emerging market and developing economies, the lender added.

Globally, employment is generally expected to continue lagging the recovery in output, the IMF report said.

While the overall balance of risks for growth is tilted to the downside, those for inflation are skewed to the upside.

The major risk to the growth outlook is the concern that more aggressive SARS-CoV-2 variants could emerge before widespread vaccination is reached.

Upside risks to inflation could materialize if pandemic-induced supply-demand mismatches continue longer than expected, and turns out worse than anticipated, the IMF said.

This could leading to more sustained price pressures and rising inflation expectations that prompt a faster-than-anticipated monetary normalization in advanced economies, the report added.

“The dangerous divergence in economic prospects across countries remains a major concern,” IMF Chief Economist Gita Gopinath said in her blog.

“These divergences are a consequence of the “great vaccine divide” and large disparities in policy support,” the economist added.

Advanced economies are expected to grow 5.2 percent this year versus 5.6 percent seen in July. The forecast for next year was raised to 4.5 percent from 4.4 percent.

The reduction in this year’s outlook was mainly due to downgrades to the US, Germany and Japan.

The growth forecast for the US for this year was lowered to 6.0 percent from 7.0 percent. The downgrade was attributed to large inventory drawdowns in the second quarter, partly due to supply disruptions, and softening consumption in the third quarter.

The outlook for next year was raised to 5.2 percent from 4.9 percent, due to increased roll out of vaccination.

For the Eurozone, the growth forecast for this year was raised to 5.0 percent and that for next year was retained at 4.3 percent.

Meanwhile, Germany’s growth projection for this year was lowered to 3.1 percent from 3.6 percent, partly due to shortages of key inputs weighing on manufacturing output. The outlook for next year was raised to 4.6 percent.

Japan’s growth forecast for this year was downgraded to 2.4 percent from 2.6 percent, mainly because of a resurgence in coronavirus infections that it a record high and forced the government to announce its fourth State of Emergency in the September quarter.

The 2021 growth forecast for emerging market and developing economies was raised to 6.4 percent from 6.3 percent. The outlook for next year was cut to 5.1 percent from 5.2 percent.

China’s growth forecast for both years were lowered by 0.1 percentage point each to 8.0 percent and 5.6 percent, respectively.

India’s growth projections for the two years were retained at 9.5 percent and 8.5 percent.

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