IMF downgrades US growth outlook amid rising inflation, supply risks
Rising inflation and supply chain disruptions are affecting the global Economic recovery from coronavirus pandemic, the International Monetary Fund warned on Tuesday.
The Washington-based IMF projected in its latest World Economic Outlook that global domestic GDP would grow by 5.9% – 0.1 percent less than July’s estimate. The IMF expects the global growth rate to be 4.9% next year.
Gita Gopinath, chief economist of the IMF, said: “The outbreak of the pandemic has disrupted supply chains in many countries, exceeding the potential for inflation in critical links of global supply chains.” wrote together in the blog. “Overall, risks to economic prospects have increased and policy tradeoffs become more complex.”
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The supply disruption on GDP is even more pronounced in advanced economies, the IMF said – including the US as the organization cut its growth projections for the US to 6%, down a full percentage point from July. This is the biggest shortfall faced by any G7 nation. The IMF lowered its growth outlook for both Spain and Germany by 0.5 percentage points and Canada by 0.6 percentage points.
The downward revision reflects an increase in COVID-19 infections from the highly contagious delta variant, supply chain shortfalls leading to worldwide shortages and the following increase in inflation – all of which have had an impact on economic growth.
“The rapid spread of delta and the threat of new variants has increased uncertainty about how quickly the pandemic can be overcome,” the report said. “Policy choices have become more difficult, facing multi-faceted challenges – low job growth, rising inflation, food insecurity, the blow to human capital accumulation, and climate change – with limited space.”
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Inflation has picked up as the economy recovered from last year’s brief but extremely severe recession.
Consumer prices have risen dramatically over the past few months, with Federal Reserve Chairman Jerome Powell attributing a surge to pandemic-induced disruptions in the supply chain, labor shortages that push wages higher and incentives. A wave of consumers flowed with cash.
In the US, consumer prices rose 5.4% in July from a year earlier, the biggest jump since August 2008, according to the Labor Department’s Consumer-Price Index. Prices cooled slightly in August, but remained as high as 5.3% from a year ago.
The spurt in inflation has put pressure on the Federal Reserve to tighten the ultra-easy monetary policy implemented during the pandemic, although Chairman Jerome Powell has said this is momentary.
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“While central banks can generally view temporary inflationary pressures and avoid tightening until there is more clarity on underlying price dynamics, if the recovery strengthens faster than expected or the risks of rising inflation expectations become tangible. , then they should be prepared to act quickly,” the IMF said.
Overall, the IMF expected the world’s advanced economies to grow by 5.2% this year, while low-income countries expected an average growth of only 3%.
“These differences are the result of the ‘great vaccine divide’ and large disparities in policy support,” Gopinath said. “While more than 60% of the population in advanced economies have been fully vaccinated and some are now getting booster shots, in low-income countries about 96% of the population remains illiterate.”