The International Monetary Fund (IMF) lowered its projection for global growth this year on supply disruptions impacting growth outlook for advanced economies, and worsening pandemic dynamics in low-income economies.
Its latest World Economic Outlook report pegs world economic growth at 5.9 percent for 2021, marginally lower than its July forecast of 6 percent. The global growth forecast for 2022 was left unchanged at 4.9 percent, IMF said.
“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,” Gita Gopinath, Chief Economist at IMF, said in a blog.
The modest headline revision in the growth forecasts masks large downgrades for some countries, Gopinath said.
If COVID-19 was to have a prolonged impact into the medium-term, IMF warned, it could reduce global GDP by a cumulative $5.3 trillion over the next five years relative to its current projection.
The report also pointed out that dangerous divergence in economic prospects across countries remains a major concern. “Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 percent in 2024. By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 percent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards,” Gopinath said.
According to IMF, these divergences are a consequence of the ‘great vaccine divide’ and large disparities in policy support. While over 60 percent of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96 percent of the population in low-income countries remains unvaccinated.
Furthermore, many emerging markets and developing economies faced with tighter financing conditions and a greater risk of de-anchoring inflation expectations are withdrawing policy support more quickly despite larger shortfalls in output, the report pointed.
Supply disruptions pose another policy challenge, IMF said. “On the one hand, pandemic outbreaks and climate disruptions have resulted in shortages of key inputs and lowered manufacturing activity in several countries. On the other hand, these supply shortages, alongside the release of pent-up demand and the rebound in commodity prices, have caused consumer price inflation to increase rapidly in, for example, the United States (US), Germany, and many emerging market and developing economies,” IMF Chief Economist said.
She added that food prices have increased the most in low-income countries where food insecurity is most acute, adding to the burdens of poorer households and raising the risk of social unrest.
According to the report, the emergence of more transmissible and deadlier SARS-CoV-2 variants, more persistent supply-demand mismatches, price pressures, faster-than-anticipated monetary policy normalization, financial market volatility, smaller US fiscal package, greater social unrest, and more adverse climate shocks are among key downside risks to its growth forecast.
On the other hand, faster vaccine production and distribution, and a spurt in productivity growth would impart upside risks to the growth forecast.
IMF retained India’s growth outlook for both the current and the next fiscal. It pegs India’s real GDP growth at 9.5 percent for FY22, at 8.5 percent for FY23 and at 6.1 percent by FY27. It sees India’s consumer prices rising by 5.6 percent in FY22 and 4.9 percent in FY23.