The International Monetary Fund has cuts its forecast for global economic growth this year due to weaker outlooks for China and the United States.
In an updated World Economic Outlook released Tuesday, the IMF now sees global growth of 4.4% this year – down five-tenths from its forecast in October — followed by a slowdown to 3.8% in 2023. The global economy grew an estimated 5.9% in 2021.
The IMF slashed its U.S. growth estimate by 1.2 percentage points to 4% this year. And the international financial organization cut its growth forecast for China by eight-tenths to 4.8%.
In China, disruption in the housing sector has served as a prelude to a broader slowdown, the IMF said. In addition, private spending has been weaker than expected and the government’s zero-tolerance policy toward Covid is dampening activity.
The U.S. growth estimate was cut because of less fiscal spending than expected as the Build Back Better program has stalled. In addition, the Federal Reserve is going to move away from its easy policy stance earlier than the IMF had expected. Continued supply shortages will also serve as a drag on growth.
Elevated inflation is expected to last into 2023, longer than previously expected, due to supply chain woes and high energy prices. Supply chain problems are expected to abate late this year.
How far and fast the Fed will have to raise interest rates is not yet clear, the report said. The IMF forecasts three rate hikes in both 2022 and 2023.
As advanced economies lift interest rates, a host of risks have emerged including financial stability, emerging market and developing economies’ capital flows, currencies and fiscal positions.
Ken Rogoff, a Harvard economics professor who is also a former IMF chief economist, has recently warned of an “inevitable financial mess in emerging markets’ if the Fed has to raise rates significantly to subdue inflation.
In its report, the IMF repeated its call for “an effective global health strategy” to combat the pandemic.
Economic losses from the coronavirus are expected to be close to $13.8 trillion through 2024, said Gita Gopinath, the IMF’s first deputy managing director.
The number of people living in extreme poverty is estimated to have been around 70 million higher than pre-pandemic trends in 2021, setting back the progress in poverty reduction by several years, she added.