IMF expects slowdowns in the United States and China to dampen growth

Slowdowns in the world’s two largest economies – the United States and China – are likely to be larger than expected this year, dragging down output across all continents and reducing global growth, a new report warned on Tuesday. .

“The global economy enters 2022 in a weaker position than expected,” the International Monetary Fund wrote in its latest World Economic Reportas rich and poor countries around the world have been hit by higher inflation, supply chain choke points, lockdowns and Covid-related labor shortages.

But the main reason the IMF cut its estimated global growth rate to 4.4% from the 4.9% it forecast just three months ago was developments in the two economic behemoths.

In the United States, the fund said the failure to pass the Biden administration’s massive $2.2 trillion infrastructure and social policy agenda and the Federal Reserve’s tightening monetary policy were among the reasons he lowered the US growth forecast by 1.2 percentage points to 4%.

In China, which has fueled much of global growth in recent years, the IMF pointed to the collapse of the real estate sector and the zero Covid policy which has restricted travel, closed businesses and reduced consumption. The report lowered the country’s growth forecast by 0.8 percentage points to 4.8%.

The fund stressed that the forecasts were subject to a high level of uncertainty – regarding the evolution of the coronavirus, climate-related natural disasters, supply chain disruptions and rising political tensions. But as the pandemic enters its third year, a note of pessimism underlies the outlook. “Overall, the risks are on the downside,” wrote Gita Gopinath, the IMF’s first deputy managing director, in an accompanying blog post.

The clouded economic outlook comes at a time when governments have less leeway in how they spend their money. Debt levels have soared over the past two years as countries grapple with the health crisis caused by the pandemic and channel aid to their citizens. Public spending is unlikely to reach the same levels in the future.

At the same time, prices, especially of food and fuel, are rising. Inflation fears are pushing interest rates higher as central banks look for ways to dissuade people from borrowing money to buy a car or investing in a business and dampen demand shortage of products. However, creeping interest rates risk not only slowing economic growth, but also burdening poorer countries with even greater debts in the distant future.

Ms Gopinath said that no matter how difficult the recovery in rich countries, emerging economies have been hardest hit by weak growth. About 70 million more people live in extreme poverty than before the pandemic.

Covid continues to hold its grip and the threat of a new, more deadly variant than Omicron remains, but the fund expects serious illnesses, hospitalizations and deaths from coronavirus to fall to low levels of here the end of the year.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the impact of this latest surge has not been as devastating: “We see evidence that Omicron is dampening economic activity, but far from be to the same extent as the virus has done before.”

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