IMF warns supply snarls slowing global recovery
WASHINGTON: Worldwide supply chain disruptions are driving price increases and draining momentum out of the economies recovering from the Covid-19 pandemic, the IMF warned on Tuesday.
The ongoing hit from the pandemic and the failure to distribute vaccines worldwide is worsening the economic divide and darkening prospects for developing nations, the IMF said in its latest World Economic Outlook.
The global economy is expected to grow 5.9 per cent this year, only slightly lower-than-projected in July, before slowing to 4.9 per cent in 2022, the report said.
But the overall figures mask large downgrades and ongoing struggles for some countries, including the United States, Germany and Japan that are feeling the impact of supply bottlenecks, IMF chief economist Gita Gopinath said.
“This recovery is really quite unique,” she told AFP on the sidelines of the annual meetings of the International Monetary Fund and World Bank.
Despite a strong return in demand, “the supply side has not been able to come back as quickly,” hampered in part by the spread of the Delta variant of the Covid-19, which has made workers reluctant to return to their jobs.
Those labour shortages are “feeding into price pressures” in major economies, she said, slowing growth expectations this year.
The energy prices have hit multiyear highs in recent days, with oil above $80 a barrel, weighing on the households.
But Gopinath said she expects the energy prices to begin to retreat by the end of the first quarter of 2022.
In the low-income developing countries, the outlook “has darkened considerably due to the worsening pandemic dynamics,” she said in a blog post on the new forecasts.
The setbacks, which she blamed on the “great vaccine divide,” will impact the restoration of living standards, and a prolonged pandemic downturn “could reduce global GDP by a cumulative $5.3 trillion over the next five years,” she warned.
“The dangerous divergence in the economic prospects across the countries remains a major concern,” Gopinath said.
Advanced economies are expected to regain “pre-pandemic trend path in 2022 and exceed it by 0.9 per cent in 2024,” she said.
However, in the emerging market and developing economies, excluding China, the output “is expected to remain 5.5 per cent below the pre-pandemic forecast in 2024”.
Amid the danger of long-term scarring, “The foremost policy priority is; therefore, to vaccinate at least 40 per cent of the population in every country by the end of 2021 and 70 per cent by mid-2022,” she said.
Delicate US balancing act
The world’s largest economy has benefitted from massive fiscal stimulus, but the Delta wave and the supply issues have undermined the progress, prompting the IMF to slash the US growth forecast for this year to 6 per cent, a full percentage point off the July figure.
The US growth is expected to slow to 5.2 per cent next year, slightly faster than previously expected, but the policymakers will face a delicate balancing act, amid risks of rising inflation and lagging employment, the fund noted.
Wages also threaten to rise, as employers compete for scarce workers, Gopinath said.
While inflation is expected to return to “more normal levels” by mid-2022 in most countries, it could take longer in the United States, she told reporters.
“There is tremendous uncertainty, we have never seen a recovery of this kind,” she said, adding that the labour shortages plaguing employers even, amid high unemployment, and supply unable to meet the demand.
US consumer prices rose 5.3 per cent annually in August, more than double the Federal Reserve’s 2 per cent goal. The markets on Wednesday will be watching for the government’s September inflation report.
US Treasury Secretary Janet Yellen said that she believes the price increases will be ‘transitory’.
“But I don’t mean to suggest that these pressures will disappear in the next month or two,” she told CBS News. “This is an unprecedented shock to the global economy.” However, if higher inflation becomes entrenched, it could force the central banks to respond aggressively, and rising interest rates would slow the recovery, the IMF cautioned.
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