IMF trims forecast on rebound in growth

Fund points to increase in threats to recovery

The International Monetary Fund expressed concern that the global economic recovery has lost momentum and become increasingly divided, even as it stuck by its prediction for a robust rebound from the coronavirus recession.

The Washington, D.C.-based lender now expects output to expand 5.9% worldwide this year, down 0.1 percentage point from what it anticipated in July and up from the 3.1% contraction of 2020, it said Tuesday in its latest World Economic Outlook.

It held the forecast for 2022 at 4.9%. The fund warned that threats to growth have increased, pointing to the delta variant, strained supply chains, accelerating inflation and rising costs for food and fuel. The aggregate figure also masked large downgrades for some countries, especially low-income nations where access to vaccines remains limited.

“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Gita Gopinath, the fund’s director of economic research, said in the report’s introduction. “The dangerous divergence in economic prospects across countries remains a major concern.”

With investors increasingly worrying about the threat of stagflation, the IMF provided some comfort by saying inflation will subside to 2% in advanced economies by the middle of 2022 after peaking in the final months of this year. But it bet that consumer prices will rise 4.9% next year in emerging and developing economies after increasing 5.5% this year. The fund cautioned that inflation risks are “skewed to the upside” and that those for growth are “tilted to the downside.”

For the world’s biggest economies, the IMF cut its 2021 forecast for the U.S. by a full percentage point to 6%, mainly because of supply constraints, but boosted its 2022 estimate to 5.2% from 4.9%. China will grow at a rate of 8% this year and 5.6% next, both a decline of 0.1 point from July, the fund said. It raised its projection for the euro area to 5% for this year from 4.6%, and kept its 2022 estimate at 4.3%. Forecasts for Japan, the United Kingdom, Germany and Canada were all cut for this year but lifted for 2022. Low-income countries were tipped to advance just 3% this year, a decrease of 0.9 point from July.

The IMF forecast that gross domestic product for advanced economies will regain its pre-pandemic level in 2022 and even exceed it by 0.9% in 2024. But only two-thirds were seen regaining their earlier employment levels. In contrast, it reckoned that emerging and developing markets will still undershoot their pre-pandemic forecast by 5.5% in 2024. The disparity is based chiefly in differences on vaccine access and policy support. About 60% of people are vaccinated against COVID-19 in rich countries, but fewer than 5% in low-income nations, it said. Emerging economies are also withdrawing policy support more quickly and face outsized pain from costlier food.