Global recovery slowing as inflation, supply chain disruptions bite

The International Monetary Fund is slightly downgrading its outlook for the global recovery from the pandemic recession, reflecting the persistence of supply chain disruptions in industrialized countries and deadly disparities in vaccination rates between rich and poor nations.

In its latest World Economic Outlook released Tuesday, the IMF foresees global growth this year of 5.9%, compared with its projection in July of 6%.

“The global recovery continues but the momentum is hobbled by the pandemic,” IMF Chief Economist Gita Gopinath told reporters at a briefing.

For the United Sates, the world’s largest economy, the IMF predicts growth of 6% for 2021, below its July forecast of 7%. The downward revision reflects a slowdown in economic activity resulting from a rise in Covid-19 cases and delayed production caused by supply shortages and a resulting acceleration of inflation.

The IMF predicts that for the world’s advanced economies as a whole, growth will amount to 5.2% this year, compared with a meager predicted gain of 3% for low-income developing countries.

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

The monetary fund expects the total output from advanced economies to recoup the losses they suffered during the pandemic by 2022 and to exceed their pre-pandemic growth path by 2024.

But in emerging and developing countries outside of China, the IMF warns, output will remain an estimated 5.5% below the output growth path that the IMF had been forecasting before the pandemic struck in March of last year. That downgrade poses a serious threat to living standards in those countries, the monetary fund said.

The IMF attributed that economic divergence to the sizable disparities in vaccine access between wealthy and low-income countries. It said the outlook for poorer countries had “darkened considerably,” reflecting the surge in cases of the delta variant that has elevated the Covid death toll worldwide to nearly 5 million.

While nearly 60% of the population in advanced economies are fully vaccinated, only about 4% of the population in the poorer countries are.

Gopinath said it should be a top priority to meet the goal of vaccinating at last 40% of the population in every country by the end of this year and 70% of the population in every country by the middle of next year.

She said to achieve these levels, wealthy countries such as the United States would have to fulfill the commitments they have made to supply vaccines to poorer nations.

“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over any where until it is over everywhere,” Gopinath said. She said the IMF projected that if Covid were to continue to have a prolonged impact it would reduce global output by $5.3 trillion over the next five years compared to the IMF’s current forecast.

Along with lagging vaccination levels, poorer nations face headwinds from a spike in inflation, with food prices rising the most in low-income countries, the IMF said.

The 5.9% rise in global output being forecast in the IMF outlook would represent a sizable gain after a 3.1% decline in output because of the pandemic last year. For 2022, the IMF foresees an expansion of 4.9%, unchanged from its July forecast.

The 6% gain in U.S. growth this year follows a deep 3.4% contraction in 2020. The IMF expects solid U.S. growth of 5.2% in 2022. For the 19 nations that use the euro currency, the IMF predicts a 5% expansion this year and 4.3% in 2022.

China, the world’s second-largest economy, is expected to register growth of 8% this year, down slightly from the IMF’s forecast of 8.1% in July, with growth of 5.6% in 2022.

A report from the Organization for Economic Cooperation and Development also pointed to a drag from inflation on the global economic recovery. The OECD’s latest composite leading indicator (CLI) found the rebound was moderating.

“The CLIs continue to anticipate a moderating pace of expansion at above trend level in Canada, the euro area as a whole and the United Kingdom,” it said.

Now, the same trend has emerged in the U.S. and Japan, it noted.

“One factor pulling down the CLIs is the persistent rise in consumer prices in recent months, driven by surging energy prices,” the OECD said.

In China, the CLIs are “now pointing towards stable growth rather than a steady increase,” it said, as the recovery is being “weighed down by the contraction of steel production.”

In the other major emerging markets, the CLIs for Russia project a steady increase in growth at above long-term trend levels. The CLIs for India indicate stable growth at below-trend levels; and Brazil is expected to see slowing growth.

IMF expresses confidence in leader

The new World Economic Outlook was prepared for this week’s fall meetings of the 190-nation IMF and its sister lending organization, the World Bank, as well as of finance ministers and central bank presidents of the Group of 20 major industrial countries. It was released hours after the IMF expressed confidence in its managing director, Kristalina Georgieva, in response to allegations that while serving as a senior World Bank official, she and others pressured staffers to change business rankings in an effort to placate China.

The IMF’s 24-member executive board said in a statement that a review it conducted “did not conclusively demonstrate” that Georgieva played an improper role in the situation.

“Having looked at all the evidence presented, the executive board reaffirms its full confidence in the managing director’s leadership and ability to continue to effectively carry out her duties,” it said.

Asked about the data controversy Gopinath told reporters that the controversy had involved a World Bank report and not an IMF publication. She said the IMF board had made it clear that it had “full confidence in the impartiality and the excellence of the analytical work of the IMF.”

Among the agenda items for the meetings this week will be efforts to persuade rich nations to fulfill their pledges to boost the level of vaccines going to poor countries as well as a discussion among the G-20 countries over a just-announced global agreement for a 15% minimum tax on corporate profits. Once the agreement is reviewed by G-20 finance officials, it is expected to be endorsed at a leaders’ summit of G-20 countries in Rome.