IMF Cuts World Growth Forecast on Weaker U.S. and China Outlooks

• The International Monetary Fund cut its world economic growth forecast for 2022 as the Covid-19 pandemic enters its third year, citing weaker prospects for the U.S. and China along with persistent inflation. 
• The world economy expanded 5.9% last year, the IMF estimated, the most in four decades of detailed data. That followed a 3.1% contraction in 2020 that was the worst peacetime decline in broader figures since the Great Depression. The global economy will expand 4.4% this year, down from an estimate of 4.9% in October 2021, the Washington-based IMF said in its World Economic Outlook on Tuesday. 
• The lower forecasts comes on the back of an expected fall-off in economic activity from the world’s largest economies. The U.S., the world’s largest economy, saw its forecast cut on the outlook for President Joe Biden’s Building Back Better spending agenda, earlier withdrawal of monetary accommodation, and continued supply shortages. China, the second-biggest, is experiencing pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and protracted financial stress among property developers. 
• IMF forecasts 3.8% growth for 2023, up from the prior projection of 3.3%. The upward revision to global growth in 2023 is mostly mechanical. Eventually, the shocks dragging 2022 growth will dissipate and, as a result, global output in 2023 will grow a little faster. 
• The general theme across the regions is that growth will slow for 2022. Central banks that slashed interest rates to soften the economic decline caused by the pandemic, are now facing pressure to tighten policy to confront surging consumer prices, threatening to curtail the growth rebound. Governments also have less fiscal space for spending to address health needs and buoy their economies after piling up record debt. 

 (Sources: Bloomberg & NCBCM Research)