IMF sees higher inflation as supply chains and Omicron slow economic growth

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Emma Charlton, Senior Writer, Formative Content

• IMF sees rising COVID caseloads, a disrupted recovery and higher rates of inflation.
• Revises down 2022 global growth forecast by half a percentage point. Global growth will moderate to 4.4% in 2022, from 5.9% in 2021, reflecting slower expansions in the US and in China.
• Rising energy prices and supply disruptions mean higher and more broad-based inflation.
• Outlook clouded with the balance of risks tilted to the downside.
• Sluggish progress on COVID vaccination is weighing on the recovery in undervaccinated countries.
• The ongoing climate emergency means the probability of major natural disasters remains elevated.

The International Monetary Fund (IMF) painted a downbeat picture of the global economic outlook, as it revised down its growth forecasts citing supply disruptions and the ongoing pandemic as two factors hampering recovery.

Global growth will slip to 4.4% in 2022, from 5.9% in 2021, the IMF predicted in its latest World Economic Outlook report. That’s half a percentage point lower for this year than in the October report, and reflects downgrades to the outlooks for the US and China. Global growth is expected to slow to 3.8% in 2023.

“The global economy is entering 2022 in a weaker position than anticipated,” the report said. “News of the Omicron variant led to increased mobility restrictions and financial market volatility at the end of 2021. Supply disruptions have continued to weigh on activity. Meanwhile, inflation has been higher and more broad-based than anticipated, particularly in the United States.”

The forecast assumes adverse health outcomes will fall to low levels in most countries by the end of this year and vaccination rates improve around the world. coronavirus, health, COVID19, pandemic

What is the World Economic Forum doing to manage emerging risks from COVID-19?

The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.

As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.

To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications – a companion for decision-makers, building on the Forum’s annual Global Risks Report.

Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.

What’s more, the risks to these predictions are “tilted to the downside”, the IMF said. Slow vaccination programmes in many emerging-market and developing economies are hindering the recovery in those undervaccinated countries.

“The most pressing health risk is the impact of the Omicron variant,” the IMF said. “Even if symptoms are less severe, increased transmissibility could still add to labour shortages and put extra pressure on hospitals, prompting tighter and longer-lasting mobility restrictions beyond the first quarter.”

This would hold back global growth even more, it said, as could the risk of further new variants.

Disruption to global trade brought about by the pandemic and changes in behaviour have led to shortages, supply chain interruptions and higher prices for imported consumer goods, the IMF report said. This has been “particularly severe” in the US, it confirmed, adding that supply disruptions shaved 0.5–1 percentage point off global GDP growth in 2021 while adding 1 percentage point to core inflation.

The longer these supply chain issues persist, “the more likely they are to feed through to expectations of higher future prices and the larger the risk to the world economy”.

Rising prices

Inflation was a key topic of the report, with the IMF saying high rates of price gains will “persist for longer than envisioned” in its October assessment, kept elevated by the supply chain disruptions and by higher energy prices.

The factors driving up the rate of inflation varied by country, with fossil fuel prices almost doubling in the past year, food prices increasing in sub-Saharan Africa and higher imported goods prices boosting inflation in the Latin America and the Caribbean region, the report said.

By country, the US 2022 growth forecast was revised down 1.2 percentage points to 4%, on the back of a withdrawal of monetary accommodation and supply chain disruptions. In China, a broader slowdown has evolved after disruption in the housing sector and a strict zero-COVID strategy is holding back expansion, leading to a 0.8 percentage point downgrade in the forecast to 4.8%.

The majority of countries covered by the report had their forecasts lowered compared with the October forecast, with outlooks weakening in Brazil, Canada, the euro area, Mexico, Russia, South Africa and the UK.

The economic outlook was also front and centre during discussions at Davos Agenda 2022, with world leaders commenting on the impact of the pandemic and the recovery.

What’s the World Economic Forum doing about climate change?

Climate change poses an urgent threat demanding decisive action. Communities around the world are already experiencing increased climate impacts, from droughts to floods to rising seas. The World Economic Forum’s Global Risks Report continues to rank these environmental threats at the top of the list.

To limit global temperature rise to well below 2°C and as close as possible to 1.5°C above pre-industrial levels, it is essential that businesses, policy-makers, and civil society advance comprehensive near- and long-term climate actions in line with the goals of the Paris Agreement on climate change.Global warming can be beaten thanks to this simple plan

The World Economic Forum’s Climate Initiative supports the scaling and acceleration of global climate action through public and private-sector collaboration. The Initiative works across several workstreams to develop and implement inclusive and ambitious solutions.

This includes the Alliance of CEO Climate Leaders, a global network of business leaders from various industries developing cost-effective solutions to transitioning to a low-carbon, climate-resilient economy. CEOs use their position and influence with policy-makers and corporate partners to accelerate the transition and realize the economic benefits of delivering a safer climate.

Contact us to get involved.Mission Possible Platform: Delivering industry pathways t…

Conversations at Davos Agenda 2022 focused on the COVID-19 pandemic response, the economic recovery, climate action, technological innovation and global collaboration.

Speakers including John Kerry, the US Special Presidential Envoy for Climate, emphasized the need for climate action. Climate risks top the World Economic Forum’s Global Risks Report 2022, which analyzes global perceptions among risk experts and world leaders in business, government, and civil society.

Climate change was also cited by the IMF as being a “grave” risk to the global economy. The probability of major natural disasters remains elevated, it said, underscoring the cloudy outlook the world is facing.

“We are seeing challenges mounting from supply chain disruptions to tectonic shifts in labour markets, to inflation figures which are of concern to policy-makers and individuals alike,” Klaus Schwab, Founder and Executive Chairman of the World Economic Forum told the Davos Agenda 2022. “The year ahead is a crucial one to work together, rebuild trust and shape a better and more inclusive future for all.”