Home Global IMF Reaffirms Global Economy is Set to Grow 4.9% Next Year, Sees Some Inflation Pressures Subsiding

IMF Reaffirms Global Economy is Set to Grow 4.9% Next Year, Sees Some Inflation Pressures Subsiding

IMF Reaffirms Global Economy is Set to Grow 4.9% Next Year, Sees Some Inflation Pressures Subsiding
Global economy is leaving behind 2020 severe contraction. Courtesy of Unsplash.com.

NEW YORK — The International Monetary Fund may have some good news to conclude 2021 and start anew next year: The global economy continues getting traction while worrisome inflation signals are set to subside in the months to come, albeit with some exceptions, while employment will take longer to stabilize. In the other hand, the recovery is still hobbled by the effects of Covid-19 pandemic.

In the latest version of its signature World Economic Outlook, the multilateral lender states that the global economy will grow 5.9% this year followed by another 4.9% in 2022, keeping pretty much its headline forecast issued in July. The 2021 projection is only 0.1% lower that the previous estimate reflecting a downgrade for advanced economies, in part due to supply disruption, and for low-income developing countries, largely due to worsening pandemic dynamics, the institution said in its report.

The multilateral organization is boosting Latin America and the Caribbean forecast, expecting a 6.3% expansion in the regional gross domestic product for this year, but only a 3% expansion in 2022, a slightly lower projection compared with the estimate issued in July.

Source: IMF, October 12, 2021

“The global recovery continues but the momentum has weakened, hobbled by the pandemic,” the IMF said in the research note which release officially mark the fall meetings of the institution and the World Bank. “Fueled by the highly transmissible Delta variant, the recorded global COVID-19 death toll has risen close to 5 million and health risks abound, holding back a full return to normalcy. Overall, risks to economic prospects have increased, and policy trade-offs have become more complex.”

The multilateral organization warns that “the dangerous divergence in economic prospects across countries remains a major concern.” According to its projections, aggregate output for the advanced economy group will regain its pre-pandemic trend next year and exceed it by 0.9% in 2024. By contrast, the aggregate output for the emerging market and developing economy group, excluding China, is expected to remain 5.5% below the pre-pandemic forecast in 2024, “resulting in a larger setback to improvements in their living standards.”

Source: IMF, October 12, 2021.

The global economy is projected to moderate its rate of growth to 3.3% beyond 2022 and the advanced economy group output is forecast to exceed pre-pandemic medium-term projections, largely reflecting sizable anticipated further policy support in the United States that includes measures to increase potential.

Persistent output losses are anticipated for the emerging market and developing economy group due to slower vaccine rollouts and generally less policy support compared to advanced economies, the report said.

Inflation Prospects

The IMF said that rising inflation reflects pandemic-related supply-demand mis-matches as well as higher commodity prices compared to their low base from a year ago, but for “the most part, price pressures are expected to subside in 2022.”

However, the relief in the cost of living may be limited. “In some emerging market and developing economies, price pressures are expected to persist because of elevated food prices, lagged effects of higher oil prices, and exchange rate depreciation lifting the prices of imported goods,” the institution stated in the report. Nevertheless, the IFM says that “great uncertainty surrounds inflation prospects”, depending of the path of the pandemic, duration of supply disruptions, and how inflation expectations may evolve in this environment.

The consumer prices index in the United States is forecast to reach 4.3% this year after a meager advance of 1.4% registered last year. For 2022, the CPI should slow down to 3.4%, according to the study. In Europe prices are projected to rise 4.2% this year compared with 2% in 2020, while expected to decline to 3.6% in 2022.

For Latin America and the Caribbean the multilateral is estimating a regional inflation of 8.3% this year and 6.8% for 2022. The forecast excludes outlier nation Venezuela which CPI is forecast to reach 2,700% this year and 2,000% in 2022.

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