IMF trims global growth outlook, warning of supply disruptions and surging inflation – Fox Business
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Surging inflation and supply chain disruptions are hampering the global economic recovery from the coronavirus pandemic, the International Monetary Fund warned on Tuesday.
The Washington-based IMF projected in its latest World Economic Outlook that global domestic gross product will grow by 5.9% this – 0.1 percentage point lower than its July estimate. The IMF expects global growth to remain at 4.9% next year.
“Pandemic outbreaks in critical links of global supply chains have resulted in longer than expected supply disruptions, feeding inflation in many countries,” Gita Gopinath, chief economist at the IMF, wrote in an accompanying blog. “Overall, risks to economic prospects have increased and policy trade-offs have become more complex.”
The supply disruption drag on GDP is even more pronounced in advanced economies, the IMF said – including the U.S. The organization slashed its growth estimates for the U.S. to 6%, down a full percentage point from July. It marked the biggest reduction suffered by any G7 nation. The IMF also reduced its growth outlooks for both Spain and Germany by 0.5 percentage points and decreased Canada’s by 0.6 percentage points.
The downward revision reflects a rise in COVID-19 infections from the highly contagious delta variant, supply chain constraints that have led to shortages around the world and the following surge in inflation – all of which have weighed on economic growth.
“Rapid spread of Delta and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome,” the report said. “Policy choices have become more difficult, confronting multidimensional challenges — subdued employment growth, rising inflation, food insecurity, the setback to human capital accumulation, and climate change — with limited room to maneuver.”
Inflation has accelerated as the economy recovers from last year’s brief but extremely severe recession.
Consumer prices have climbed dramatically over the past few months, an increase that Federal Reserve Chairman Jerome Powell has attributed to pandemic-induced disruptions in the supply chain, a shortage of workers that’s pushed wages higher and a wave of pent-up consumers flush with stimulus cash.
In the U.S., consumer prices jumped 5.4% in July from a year earlier, the largest jump since August 2008, according to the Labor Department’s consumer-price index. Prices cooled slightly in August, but remained high at 5.3% from a year earlier.
The inflation spurt has raised pressure on the Federal Reserve to tighten the ultra-easy monetary policy put in place during the pandemic, though Chairman Jerome Powell has maintained that it’s likely transitory.
“Although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation expectations become tangible,” the IMF said.
As a whole, the IMF expected the world’s advanced economies to grow by 5.2% this year, compared with an average growth expectation of just 3% for low-income nations.
“These divergences are a consequence of the ‘great vaccine divide’ and large disparities in policy support,” Gopinath said. “While over 60% of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96% of the population in low-income countries remain unvaccinated.”