Global Economic Growth Outlook Faces Major Downgrades
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Chapter 1: The Impact of Pandemic on Global Growth
In recent years, the uncertainty stemming from the pandemic has significantly disrupted the global economy, leading to numerous adjustments in economic forecasts to accommodate the evolving situation. The emergence of the Omicron variant has further complicated matters, resulting in renewed mobility restrictions alongside existing labor shortages, supply chain issues, and rising inflation.
The latest World Economic Outlook (WEO) has reflected these challenges, projecting a decline in global growth from 5.9% in 2021 to 4.4% in 2022. This figure is 0.5 percentage points lower than the October projection of the previous year. The downgrade is primarily driven by downward revisions in the world's two largest economies: China and the United States. The U.S. faced a significant 1.2-point reduction, while China's forecast dropped by 0.8 percentage points.
According to the report, global growth is anticipated to further decelerate to 3.8% in 2023. Although this represents a 0.2 percentage point increase over prior forecasts, this adjustment mainly reflects a rebound as current drags on growth subside in the latter half of 2022. Many global central banks expect inflationary pressures to linger a bit longer before easing, as supply-demand imbalances settle, prompting corresponding adjustments in monetary policies.
The first video discusses the IMF's downgraded outlook for global economic growth in 2022, emphasizing the impact of the pandemic and inflation on recovery trajectories.
Section 1.1: Contribution of Major Economies to Growth Downgrades
As noted earlier, the largest reductions in the global economic forecast for 2022 stemmed from China and the U.S. These two nations accounted for nearly 80% of the downward revisions in growth, contributing roughly 0.2% each, while other regions made a minor contribution of 0.1% to the overall 0.5% revision. The U.S. economy has been adversely affected by the diminished prospects of the Build Back Better fiscal initiative, coupled with monetary policy tightening and ongoing supply chain disruptions. Conversely, China's economy is grappling with a persistent contraction in the real estate sector and a slower-than-anticipated recovery in consumer spending.
Subsection 1.1.1: Rising Inflation Expectations
Recent WEO findings indicate that inflation expectations have been adjusted upward for most economic regions. Elevated price pressures are projected to persist, particularly in developed economies, while emerging markets and developing nations may experience less pronounced effects. As demand shifts from goods to services and accommodating monetary policies are phased out, energy and food prices are expected to rise at a more subdued pace in 2022, before inflation begins to decline in 2023.
Section 1.2: Divergent Economic Recoveries
Divergent recovery patterns are expected to continue. Advanced economies are forecasted to return to pre-pandemic growth trajectories this year, while numerous emerging markets and developing economies are likely to experience significant output losses in the medium term. The number of individuals living in extreme poverty is estimated to be approximately 70 million higher than pre-pandemic levels as of 2021, reversing years of progress in poverty alleviation.
Chapter 2: Ongoing Risks to Global Economic Stability
The most pressing threat to the global economy remains the pandemic and our ability to manage its effects. Achieving this requires a concerted global effort to ensure widespread vaccination, testing, and access to therapeutics, including newly developed antiviral treatments. Currently, only 4% of the population in low-income nations is fully vaccinated, compared to 70% in high-income countries.
The second video examines the IMF's revised outlook for 2023, highlighting anticipated slow global economic growth and the ongoing challenges faced by various economies.
Despite improvements, risks to the global economy continue to loom. New variants could prolong the pandemic, leading to renewed economic disruptions. Additional uncertainties arising from supply chain issues, energy price volatility, and localized wage pressures may create complications for central banks' policy paths.
Furthermore, rising interest rates in advanced economies may jeopardize financial stability and impact capital flows, currencies, and fiscal conditions in emerging markets and developing nations. When combined with climate emergencies and geopolitical tensions, the outlook appears increasingly daunting.