In its latest World Economic Outlook (WEO) report, which was released last week, the International Monetary Fund (IMF) revised its global growth forecast to show a slower-than-expected growth trend for 2022.
The international lending body has identified three core economic forces behind an expectedly slow global growth for 2022, as worldwide economic progress is reported to manage a 4.4 per cent growth rate different from the initial projection of 5.9 per cent.
According to the report, “The global economy enters 2022 in a weaker position than previously expected. As the new Omicron Covid-19 variant spreads, countries have re-imposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging markets and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects.”
Furthermore, “Elevated inflation is expected to persist for longer than envisioned… with ongoing supply chain disruptions and high energy prices continuing in 2022. Assuming inflation expectations stay well-anchored, inflation should gradually decrease as supply-demand imbalances wane in 2022 and monetary policy in major economies responds,” the report notes.
Indeed, fresh waves of infections due to the Omicron variant of the novel covid-19 virus have kept many world economies from opening up to meet pre-pandemic times. Many countries are still observing the quarantine and isolation protocols, especially for visitors and returning citizens into their countries. Also, many businesses are still operating remotely, leaving only a few business workers running full on-site operations.
The restrictions imposed to mitigate the further spread of the deadly virus are surely inhibiting economic progress, especially in the sectors that require full on-site operations like manufacturing, agriculture and food production, and distribution. New infections have also caused labour shortages as rising death rates are being recorded, especially in the world’s most affected countries.
Although increasing vaccination rollouts are being reported globally, the spillover effects of the ravaging disease will still linger for a while, according to the IMF. Countries must learn to live with the virus and create adaptive policies to decimate its venomous sting while negotiating better health interventions with global health experts to provide more efficient antidotes against future variants that may emerge.
The IMF also blamed the expected slowdown in global growth for 2022 on supply chain disruptions resulting from huge swings in consumer behaviour.
Owing to the pandemic, there was a considerable fall in global demand, and then, it began to regain strength. In the face of an extended supply hitch, the rising trend in global demand that followed resulted in material shortages and heavy congestion at the various ports across international coastlines and land boundaries. Consequently, freight charges were bolstered.
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Restrictions in the supply chain across global distribution lines and the corresponding freight charges put upward pressure on goods prices, thus, creating an inflationary environment in the goods market internationally. Supply bottlenecks amid demand pressures created a volatile goods market which enhanced global prices.
The IMF has predicted in the WEO report that inflation will persist longer in 2022 than it did in the previous year. In addition to supply-demand related challenges, rising fossil fuel prices which have more than doubled in the past year, have also contributed to rising food prices globally.
The rise in oil prices globally will induce cost-push inflation as increases in the cost of manufacturing and moving materials will suffice. Increases in retail inflation due to rising costs has dire consequences on overall economic growth as demand preferences across the various economic units will be altered, and immediate government response policies may further hurt the economy in the short term. For instance, many economists envisage a rise in global interest rates across various economies in the bid to slow down inflation. However, an up jerk in the interest rate may not remedy high prices due to supply causes.
The IMF envisages that many countries will fare through the predicted slow growth-rising inflation year, as reactive governments tackle the covid-19 challenges through increased vaccination programmes and improved post-pandemic therapies as the year sums up in time. If this happens, inflation is expected to be moderated as the supply-demand gap closes in response to reactive governments’ health and economic interventions.
However, the future may be bleak for governments of struggling nations with limited capacity to respond appropriately to the factors that threaten global progress as they remain dependent on foreign interventions to pave the way through loans, debt forgiveness and other concessionary handouts that may have long-term repercussions.
