IMF Cuts Growth Outlook for US, World

The global economy is still being squeezed by pandemic, IMF says

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Momentum for economic recovery has weakened since July, prompting the International Monetary Fund to downgrade its economic growth forecast for both the U.S. and the world as the pandemic keeps its grip on the global economy.

Key Takeaways

  • The pandemic continues to affect economies all over the world, prompting the IMF to cut its growth forecasts.
  • World growth is now seen at 5.9%, down from the July forecast 6%, and U.S. growth at 5.2%, down from 5.6%.
  • The IMF also warned of inflationary pressures due to pandemic-related disruptions lingering longer than expected.

In a report released on Tuesday, the organization of 190 countries cut its economic growth outlook for the U.S. this year to 5.2% from 5.6% in July and trimmed its global forecast to 5.9% from 6%. It said U.S. growth was being hampered partly by supply disruptions and softening consumer spending, while other parts of the world where COVID-19 vaccination rates remain low see a darker outlook as they continue to grapple with infection rates. Along with the cuts in economic growth, the IMF warned of inflationary pressures.

When the pandemic struck last year, many countries put in restrictions to slow the spread of COVID-19. That slowed production of and transporting of goods, something that was expected to abate once vaccines rolled out and economies were able to reopen and grow again. However, new virus variants have emerged and vaccines have not been distributed widely throughout the world, which IMF Economic Counselor and Director of Research Gita Gopinath dubs the “great vaccine divide.” That has, in part, caused supply bottlenecks to persist, fanning inflation and slowing the global economy. 

“Food prices have increased the most in low-income countries where food insecurity is most acute, adding to the burdens of poorer households and raising the risk of social unrest,” Gopinath wrote in a blog post.

The IMF forecasts U.S. annual inflation at 4.3% this year, topping the average of 2.8% for all advanced economies. For emerging and developing European economies, it sees 8.4% inflation this year, and for Latin America and the Caribbean, it predicts inflation of 9.3%.

To illustrate the uneven recovery, Gopinath noted that advanced economies are expected to regain their pre-pandemic output trend in 2022, but emerging market and developing economies (excluding China) are still expected to be 5.5% below the pre-pandemic forecast in 2024.

“The dangerous divergence in economic prospects across countries remains a major concern,” she said.

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