| World Bank IMF and Dev Agencies |    809 VIEWS  |
| World Bank IMF and Dev Agencies | |
| 809 VIEWS | |
 |
Tuesday, January 25, 2022 / 06:18 PM / by IMF / Header
Image Credit: IMF
The global economy enters
2022 in a weaker position than previously expected. As the new Omicron COVID-19
variant spreads, countries have reimposed mobility restrictions. Rising energy
prices and supply disruptions have resulted in higher and more broad-based
inflation than anticipated, notably in the United States and many emerging
market and developing economies. The ongoing retrenchment of China's real
estate sector and slower-than-expected recovery of private consumption also
have limited growth prospects.
Global growth is expected
to moderate from 5.9 in 2021 to 4.4 percent in 2022 half a percentage point
lower for 2022 than in the October World Economic Outlook (WEO), largely
reflecting forecast markdowns in the two largest economies. A revised assumption
removing the Build Back Better fiscal policy package from the baseline, earlier
withdrawal of monetary accommodation, and continued supply shortages produced a
downward 1.2 percentage-points revision for the United States. In China,
pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and
protracted financial stress among property developers have induced a 0.8
percentage-point downgrade. Global growth is expected to slow to 3.8 percent in
2023. Although this is 0.2 percentage point higher than in the previous
forecast, the upgrade largely reflects a mechanical pickup after current drags
on growth dissipate in the second half of 2022. The forecast is conditional on
adverse health outcomes declining to low levels in most countries by end-2022,
assuming vaccination rates improve worldwide and therapies become more
effective.
Elevated inflation is
expected to persist for longer than envisioned in the October WEO, with ongoing
supply chain disruptions and high energy prices continuing in 2022. Assuming
inflation expectations stay well-anchored, inflation should gradually decrease
as supply-demand imbalances wane in 2022 and monetary policy in major economies
responds.
Risks to the global
baseline are tilted to the downside. The emergence of new COVID-19 variants
could prolong the pandemic and induce renewed economic disruptions. Moreover,
supply chain disruptions, energy price volatility, and localized wage pressures
mean uncertainty around inflation and policy paths is high. As advanced
economies lift policy rates, risks to financial stability and emerging market
and developing economies' capital flows, currencies, and fiscal
positions especially with debt levels having increased significantly in the
past two years may emerge. Other global risks may crystallize as geopolitical
tensions remain high, and the ongoing climate emergency means that the
probability of major natural disasters remains elevated.
With the pandemic
continuing to maintain its grip, the emphasis on an effective global health
strategy is more salient than ever. Worldwide access to vaccines, tests, and
treatments is essential to reduce the risk of further dangerous COVID-19
variants. This requires increased production of supplies, as well as better
in-country delivery systems and fairer international distribution. Monetary
policy in many countries will need to continue on a tightening path to curb
inflation pressures, while fiscal policy operating with more limited space than
earlier in the pandemic will need to prioritize health and social spending
while focusing support on the worst affected. In this context, international
cooperation will be essential to preserve access to liquidity and expedite
orderly debt restructurings where needed. Investing in climate policies remains
imperative to reduce the risk of catastrophic climate change.
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