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IMF slashes US growth forecast by one percentage point to 6%


The International Monetary Fund has slashed its economic growth projections for the United States, citing supply chain disruptions, inflation and lingering impacts from the COVID-19 pandemic.

The IMF‘s latest report on Tuesday predicts US gross domestic product (GDP) growth of 6 percent for 2021, below its July forecast of 7 percent. 

The downward revision reflects a slowdown in economic activity resulting from the Delta surge and delayed production caused by supply shortages and a resulting acceleration of inflation. 

US growth could shrink further, the IMF said, because its forecasts assume that a deeply divided Congress will approve President Joe Biden‘s proposed infrastructure and social spending programs worth $4.5 trillion over a decade. 

Lawmakers now are trying to achieve consensus on a smaller package, and the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

The IMF’s latest report on Tuesday predicts US gross domestic product (GDP) growth of 6 percent for 2021, below its July forecast of 7 percent

IMF officials discuss the new report, which predicts that for the world's advanced economies as a whole, growth will amount to 5.2 percent this year

IMF officials discuss the new report, which predicts that for the world’s advanced economies as a whole, growth will amount to 5.2 percent this year

Much of the decline in projected US economic growth is due to a slashing of IMF forecasts of US imports, which have been disrupted by supply chain issues.  

Global manufacturing activity has been slammed by shortages of key components such as semiconductors, clogged ports and a lack of cargo containers.

A labor crunch is also impacting the movement of goods as global supply chains optimized for efficiency have struggled to return to normal after pandemic-induced shutdowns last year.

Demand-supply mismatches, fueled in part by excess savings built up in wealthy countries, have driven up prices, causing spikes in inflation. 

‘Even as employment rates remain below prepandemic levels—suggesting substantial labor market slack—headline inflation rates have increased rapidly in the United States and in some emerging market and developing economies in recent months,’ the report stated. 

The IMF said it expects inflation to return to pre-pandemic levels next year, but warned that persistent supply disruptions risked sending expectations of future inflation up, which can become a self-fulling prophesy.

Expectations of future inflation can drive prices up, as workers demand higher wages and consumers go on buying frenzies in anticipation that prices will rise further. 

The IMF notes inflation has risen sharply in advanced economies

The IMF notes inflation has risen sharply in advanced economies

Supply chain disruptions are a major impediment to global growth, the IMF says

Supply chain disruptions are a major impediment to global growth, the IMF says

The report, which was issued at the outset of the IMF and World Bank fall meetings, also cut growth forecasts for other industrial economies. 

German growth was reduced by half a percentage point from the July forecast to 3.1 percent while Japan’s growth was lowered 0.4 point to 2.4 percent.

The IMF’s forecast for British growth this year fell only 0.2 point to 6.8 percent, giving it the fastest growth forecast among the G7 economies.

China’s 2021 growth forecast was trimmed by 0.1 point to 8 percent, as the IMF cited a faster-than-expected scaleback of public investment spending. 

India’s forecast was unchanged at 9.5 percent, but prospects in other emerging Asian countries have been diminished due to a worsening of the pandemic.

The IMF predicts that for the world’s advanced economies as a whole, growth will amount to 5.2 percent this year, compared with a meager predicted gain of 3 percent for low-income developing countries.

‘The dangerous divergence in economic prospects across countries,’ the IMF said, ‘remains a major concern.’

‘The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions,’ the fund stated. 

The Evergreen cargo ship "Ever Liberal" is seen at the Port of Los Angeles on October 6 in San Pedro, California. A record number of cargo ships have been stuck in limbo

The Evergreen cargo ship ‘Ever Liberal’ is seen at the Port of Los Angeles on October 6 in San Pedro, California. A record number of cargo ships have been stuck in limbo

The monetary fund expects the total output from advanced economies to recoup the losses they suffered during the pandemic by 2022 and to exceed their pre-pandemic growth path by 2024. 

The report also warned of a dangerous divergence in economic prospects fueled by ‘the great vaccine divide,’ with low-income countries, where 96 percent of the population remains unvaccinated.

Along with lagging vaccination levels, poorer nations face headwinds from a spike in inflation, with food prices rising the most in low-income countries, the IMF said. 

‘About 65 million to 75 million additional people are estimated to be in extreme poverty in 2021 compared to pre-pandemic projections,’ the report said, adding that low-income countries needed some $250 billion in additional spending to fight COVID-19 and regain their pre-pandemic growth path.

Currently, these countries are forecast to have cumulative output next year that is 6.7 percent below pre-pandemic levels. Advanced economies, meanwhile, will have 2022 output nearly 1 percent above pre-pandemic levels, the IMF said.

The report was released hours after the IMF expressed confidence in its managing director, Kristalina Georgieva, in response to allegations that while serving as a senior World Bank official, she and others pressured staffers to change business rankings in an effort to placate China.

IMF Managing Director Kristalina Georgieva has been accused of pressuring World Bank staff to amend data affecting 2018 business environment rankings to placate China

IMF Managing Director Kristalina Georgieva has been accused of pressuring World Bank staff to amend data affecting 2018 business environment rankings to placate China

Georgieva has denied any wrongdoing in response to an investigative report by the WilmerHale law firm. 

The report found she played a role in pressuring World Bank staff to amend data affecting 2018 rankings that were meant to show how welcoming China and other nations were to businesses.

Countries used the annual Doing Business report, which evaluated tax burdens, bureaucratic obstacles and regulatory systems, to attract foreign investment.

The IMF´s 24-member executive board said in a statement that a review it conducted ‘did not conclusively demonstrate’ that Georgieva, played an improper role in the situation.

‘Having looked at all the evidence presented, the executive board reaffirms its full confidence in the managing director´s leadership and ability to continue to effectively carry out her duties,’ it said.

Among the agenda items for the meetings this week will be efforts to persuade rich nations to fulfill their pledges to boost the level of vaccines going to poor countries as well as a discussion among the G-20 countries over a just-announced global agreement for a 15 percent minimum tax on corporate profits. 

Once the agreement is reviewed by G-20 finance officials, it is expected to be endorsed at a leaders´ summit of G-20 countries in Rome.



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