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Omicron surge: IMF cuts 2022 global growth forecast to 4.4%

In this Jan 24, 2022 file photo, a pedestrian passes the New York Stock Exchange in New York, as Omicron coronavirus variant is causing havoc at businesses around the world. (JOHN MINCHILLO / AP)

WASHINGTON – The International Monetary Fund on Tuesday projected the global economy to grow by 4.4 percent in 2022, down by 0.5 percentage points from October’s forecast, according to a newly released update to its World Economic Outlook report. 

Growth will slow as economies grapple with supply disruptions, higher inflation, record debt and persistent uncertainty, First Deputy Managing Director Gita Gopinath told a virtual press briefing. 

“The rapid spread of the Omicron variant has led to renewed mobility restrictions in many countries and increased labor shortages,” said Gopinath, who was previously the IMF’s chief economist. 

Supply disruptions still weigh on activity and are contributing to higher inflation. 

Gita Gopinath, First Deputy Managing Director, IMF 

She added that while Omicron will weigh on activity in the first quarter of 2022, this effect will fade starting in the second quarter. 

“Supply disruptions still weigh on activity and are contributing to higher inflation,” adding to pressures from strong demand and elevated food and energy prices, said Gopinath. 

Supply-demand imbalances are assumed to decline over 2022 based on industry expectations of improved supply, as demand gradually rebalances from goods to services, and extraordinary policy support is withdrawn, according to the latest report. 

The IMF has revised up 2022 inflation forecasts for both advanced and emerging market and developing economies, with elevated price pressures expected to persist for longer. Assuming inflation expectations remain anchored, inflation is expected to subside in 2023. 

The IMF has repeatedly stressed the divergence in prospects across countries. “While advanced economies are projected to return to pre-pandemic trend this year, several emerging markets and developing economies are projected to have sizeable output losses into the medium-term,” Gopinath noted. 

A woman wearing a protective face mask walks in front of a public awareness notice on the Omicron coronavirus variant on Jan 24, 2022, in Tokyo, Japan. (EUGENE HOSHIKO / AP)

As of now, only 4 percent of the populations of low-income countries are fully vaccinated versus 70 percent in high-income countries, according to the multilateral lender. 

There is an “urgent” need to close the $23.4-billion financing gap for the Access to COVID-19 Tools Accelerator, a global platform led by the World Health Organization, and to incentivize technological transfers to help speed up the diversification of global production of critical medical tools, especially in Africa, Gopinath said. 

At the national level, she said, policies should remain tailored to country-specific circumstances including the extent of recovery, underlying inflationary pressures and available policy space. 

The IMF expects global growth to slow to 3.8 percent in 2023. This is 0.2 percentage points higher than in the IMF’s World Economic Outlook last October and largely reflects a pickup after current drags on growth dissipate, according to the latest report. 

Reference