Supply chain disruptions hurting global recovery

PERSISTENT supply chain disruptions and inflation pressures are constraining the global economy’s recovery from the COVID-19 pandemic, the International Monetary Fund said on Tuesday as it cut growth outlooks for the United States and other major industrial powers.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9 percent from the 6.0 percent it forecast in July. It left a 2022 global growth forecast unchanged at 4.9 percent.

“This modest headline revision, however, masks large downgrades for some countries,” the IMF said in the report, adding that worsening pandemic dynamics have darkened the outlook for low-income developing economies, while wealthy countries are struggling with supply disruptions.

The IMF expects elevated inflation to subside to pre-pandemic levels in 2022. But its chief economist Gita Gopinath signaled that the global lender is growing more concerned about persistent inflation, saying: “Central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery.”

Global manufacturing activity has been slammed by supply-demand mismatches and shortages of key components such as semiconductors, clogged ports and a lack of cargo containers, and a labor crunch as global supply chains optimized for efficiency remain in disarray after pandemic-induced shutdowns last year.

The United States is taking the brunt of these effects, and the IMF slashed its 2021 US growth forecast by a full percentage point, to 6.0 percent, from 7.0 percent in July — a level that was seen as the strongest pace since 1984.

US growth could shrink further, the IMF said, because its forecasts assume a deeply divided US Congress will approve President Joe Biden’s proposed infrastructure and social spending worth US$4 trillion over a decade.

Lawmakers now are trying to achieve consensus on a smaller package, and the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

The report, which was issued at the outset of the IMF and World Bank fall meetings, also cut growth forecasts for other industrial economies. German growth was reduced by half a percentage point from the July forecast to 3.1 percent while Japan’s growth was lowered 0.4 point to 2.4 percent.

The IMF’s forecast for British growth this year fell only 0.2 point to 6.8 percent, giving it the fastest growth forecast among the G7 economies.

China’s 2021 growth forecast was trimmed by 0.1 point to 8.0 percent, as the IMF cited a faster-than-expected scaleback of public investment spending. India’s forecast was unchanged at 9.5 percent, but prospects in other emerging Asian countries have been diminished due to a worsening of the pandemic.