IMF cuts its global growth forecast, citing supply disruptions and the pandemic


CNBC 12 October, 2021 - 08:01am

The International Monetary Fund is now less optimistic about the global economy for 2021, but still sees reasonable growth over the medium term. 

In its World Economic Outlook, published Tuesday, the Fund said it expects global gross domestic product to grow by 5.9% this year — 0.1 percentage point lower than its July estimate. For next year, the IMF has kept its global growth projection at 4.9%.

The revised outlook for this year comes amid supply chain issues in advanced economies and a worsening health situation in emerging countries.

"This modest headline revision masks large downgrades for some countries," Gita Gopinath, chief economist at the IMF, said in an accompanying blogpost.

"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 United States is one of the countries in this position; the IMF has cut its growth estimates for the country this year by 1 percentage point to 6%. The growth outlooks for Spain and Germany were also cut by 0.5 percentage points each, and Canada's was reduced by 0.6 percentage points.

Beyond 2022, however, the IMF forecasts a moderate global growth level of 3.3% over the medium term.

The IMF said it was particularly concerned about the different paces of recovery in advanced and emerging economies. 

Its estimates show that while advanced economies could exceed their pre-pandemic levels in 2024, developing countries, excluding China, could remain 5.5% below their pre-pandemic forecast.

"These divergences are a consequence of the 'great vaccine divide' and large disparities in policy support," Gopinath said.

"While over 60% of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96% of the population in low-income countries remain unvaccinated."

Consumer prices have risen substantially over the last couple of months on the back of supply chain disruptions and higher commodity prices, notably gas.

In the U.S., consumer prices rose 5.4% in July from a year earlier — matching the largest jump since August 2008 — before easing slightly in August. Meanwhile, in the euro zone, inflation reached a 13-year high in September.

This rising inflation has ramped up the pressure on central banks to ease off their monetary stimulus programs quicker than anticipated.

"Inflation risks are skewed to the upside and could materialize if pandemic-induced supply-demand mismatches continue longer than expected," the Fund warned in its report.

As a result, the IMF warned that, "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."

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IMF cuts global growth outlook

The Star 13 October, 2021 - 08:22pm

World’s Growth Cools and the Rich-Poor Divide Widens

The New York Times 13 October, 2021 - 08:22pm

The International Monetary Fund says the persistence of the coronavirus and global supply chain crisis weighs on economies.

As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.

The overall growth rate will remain near 6 percent this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.

Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.

Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96 percent of people in low-income countries are still unvaccinated.

“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.

The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the work force.

In the United States, weakening consumption and large declines in inventory caused the I.M.F. to pare back its growth projections to 6 percent from the 7 percent estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.

Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.

“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Ms. Gopinath said. The I.M.F. lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July. For 2022, the estimate is 4.9 percent.

The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.

For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Mr. Daco said, raising costs of raw materials that reverberate through the production process.

The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A Covid outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken won’t have shoes and sweaters to sell.

The I.M.F. warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.

The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.

In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.

And over the weekend, Lebanon’s six million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.

Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”

Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.

In Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.

And in East Asia and the Pacific, a World Bank update warned that “Covid-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40 percent or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.

Overall, though, some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4 percent in 2021 compared with 6.3 percent estimated in July.

“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”

The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’s delay in lifting the debt ceiling — can further set back the recovery, the I.M.F. warned.

But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.

Ms. Gopinath at the I.M.F. urged vaccine manufacturers to support the expansion of vaccine production in developing countries.

Earlier this year, the I.M.F. approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.

“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”

IMF Says Greek Economy Will Grow by 6.5% This Year

Greek Reporter 13 October, 2021 - 04:42am

The International Monetary Fund (IMF) announced on Tuesday that the Greek economy is looking at a growth rate of 6.5% by the end of 2021.

The IMF detailed the country’s growth for 2021 in their global economic outlook report, where they also projected that Greece’s economy would grow by 4.6% in 2022.

The Fund predicts that the inflation rate will reach 1.3% by the end of the year and then drop down to 0.4% by 2022. They project that the unemployment rate will drop to 15.8% in 2021 and further down to 14.6% next year, both years down from 16.4% in 2020.

The IMF’s report comes a week after Greece’s own prediction and offers almost exactly the same figure. The country announced it would reach a growth rate of 6.1% in 2021, while the IMF bumped that number up to 6.4%.

Greece made their announcement in the provisions of the draft budget plan brought before Parliament on Monday.

Both the Greek government’s and the IMF’s data indicate that the Greek economy is expected to recover all losses suffered in 2020 in the fourth quarter of 2022.

Private consumption is projected to rise 2.9 percent this year, after falling by 5.2 percent in 2020 and to grow by 2.9 percent in 2022. Public consumption is expected to rise by 4.1 percent in 2021 and to fall by 2.8 percent in 2022, after rising by 2.7 percent in 2020, as the government will gradually lift support measures.

Private investments, which fell 0.6 percent last year, are projected to jump 11.1 percent this year and to soar by 23.4 percent in 2022 helped by the inflow of funds from the Recovery Fund.

Exports of goods and services fell 21.7 percent in 2020, but are expected to rise 14 percent this year and 11.1 percent in 2022. Imports are projected to rise 6.6 percent this year and 8.9 percent in 2022, after falling by 6.8 percent in 2020. Unemployment is projected to fall to 16 percent this year and to 14.3 percent of the workforce in 2022, from 16.3 percent in 2020.

The draft budget plan noted that the National Recovery and Resilience Plan is expected to add 2.9 percentage points of GDP in 2022, while a gradual return to normalcy, based on the vaccination program, will offer additional economic benefits.

A return to normalcy is expected to facilitate the stabilization of fiscal data and support a further recovery of the tourism sector, with travel receipts expected to rise by 60 percent compared with 2021.

The 6.5 percent growth forecast from the IMF is even higher than the projection by Greek PM Kyriakos Mitsotakis who stated in September that Greece’s economy will grow 5.9 percent during 2021.

The faster growth gave the Prime Minister the fiscal space to announce at the Thessaloniki International Fair a range of tax reductions and spending targeted at young people, small businesses, and the middle class.

Small businesses are encouraged to merge with tax breaks and new entrants in the job market will be subsidized. There was even something for 15- to 17-year-olds who will be vaccinated, in the form of 50 gigabytes of free data for their smartphones.

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