IMF Lowers Growth Forecast as Global Economic Recovery Loses Momentum

The International Monetary Fund (IMF) has again revised down its forecast for economic growth this year, saying that the global recovery from the pandemic has lost momentum and become increasingly divided.

The Washington-based IMF says it now expects the global economy to expand 5.9% this year, down 0.1 percentage point from what it anticipated in July. The new forecast comes from the IMF’s latest World Economic Outlook. It held its forecast for 2022 at 4.9%, the same prediction as in July.

The IMF warned that threats to growth had increased, pointing to the Delta variant of COVID-19, strained supply chains, accelerating inflation and rising costs for food and fuel. The aggregate figure also masked large downgrades for some countries, especially low-income nations where access to vaccines remains limited.

"Overall, risks to economic prospects have increased, and policy trade-offs have become more complex," the IMF said in a news release.

With investors increasingly worrying about the threat of stagflation, the IMF provided some comfort by saying inflation will subside to 2% in advanced economies by the middle of 2022 after peaking in the final months of this year.

Among the world’s biggest economies, the IMF cut its 2021 forecast for the U.S. by a full percentage point to 6%, mainly because of supply constraints, but boosted its 2022 estimate to 5.2% from 4.9%.

China will grow at a rate of 8% this year and 5.6% next, both a decline of 0.1 percentage points from July. The IMF raised its projection for the euro area to 5% for this year from 4.6%, and kept its 2022 estimate at 4.3%.

Forecasts for Japan, the U.K., Germany and Canada were all cut for this year, but lifted for 2022. Low-income countries were tipped to advance just 3% this year.

Looking further out, the IMF said if COVID-19 has a prolonged impact, it could reduce global GDP by $5.3 trillion U.S. over the next five years relative to current projections. That could be offset if governments intensify efforts to equalize vaccine access.