The Daily Update: IMF Trims Global Growth Forecast

Yesterday the IMF trimmed its 2021 growth outlook as the global economy struggles to deal with the combined headwinds of increased energy costs, inflation worries and the global shortages of key components. Whilst the fund still expects the global economy to grow by 5.9% this year, down 0.1% on its previous forecast, it believes the worldwide economic risks have increased. It has kept its 2022 forecast unchanged at 4.9%.

In the note released alongside the reports the IMF said ‘This modest headline revision, however, masks large downgrades for some countries’ adding ‘The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions’.

When it comes to the downgrade for advanced economies it’s the US that the IMF thinks will take the biggest hit, with its growth slashed by a full percentage point, to 6.0%, from 7.0% from July. The bad news might not stop there. The 6% growth forecast assumes that Biden’s proposed infrastructure and social spending worth $4tn over a decade will get the go ahead. If, as many believe, a smaller package is the most likely outcome, the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

Growth in Germany is now predicted to be at 2.6%, down 0.5% from July and Japan was lowered 0.4% to 2.4%. China’s forecast was trimmed to 8%, down 0.1% whilst India was unchanged at 9.5%. The fastest growing G7 country this year will be the UK, growing at 6.8%, 0.2% lower than previously eyed.

The report also warned of ‘the great vaccine divide’, a divergence in economic prospects of low-income countries, where 96% of the population remains unvaccinated, facing more poverty, a lower growth rate and the prospect of de-anchoring inflation expectations.

‘About 65 million to 75 million additional people are estimated to be in extreme poverty in 2021 compared to pre-pandemic projections’ the fund said, estimating that low-income countries needed an additional spending of approximately USD250bn to fight the pandemic and regain their pre-COVID growth rate.