IMF lowers global economic forecast

Created: 01/25/2022, 17:50

There is bad news for consumers: prices are expected to rise significantly again worldwide.

© Demy Becker/dpa

Economic giants China and the US are holding back global growth this year.

The IMF is also lowering its economic forecast for Germany.

Washington - The global economic recovery from the Corona crisis is faltering - and consumer prices continue to rise.

In view of weaker expected growth in China and the USA, the International Monetary Fund (IMF) has revised its forecast for the development of the global economy slightly downwards.

The global economy is expected to grow by 4.4 percent in 2022 - 0.5 percentage points less than the last forecast in October, according to the IMF.

The inflation rate, in turn, is expected to be significantly higher than expected three months ago.

For the industrialized countries, the IMF expects an average inflation rate of 3.9 percent for this year, an increase of 1.6 percentage points.

In developing and emerging countries, the inflation rate is expected to average 5.9 percent in 2022 - an increase of one percentage point.

The rate of inflation is not expected to normalize until 2023.

Higher inflation weakens the purchasing power of consumers because they can buy less with one euro or dollar than before.

Growth forecast for Germany lowered

The IMF lowered the forecast for growth in gross domestic product (GDP) in Germany this year to 3.8 percent, which is 0.8 percentage points less than assumed in October.

The main reason given by the IMF was the ongoing interruptions in global supply chains, which are particularly affecting the German economy.

For the euro zone, the IMF lowered its growth forecast for this year by 0.4 percentage points to 3.9 percent.

The IMF admitted that the new economic forecasts are characterized by a high degree of uncertainty.

With a view to the coronavirus pandemic, chief economist Gita Gopinath explained that “the development of more deadly variants could prolong the crisis”.

In addition, China's strategy of using strict local lockdowns to avoid spreading the virus could exacerbate problems in global supply chains.

The real estate sector in the world's second largest economy also harbors risks.

If the industry's financial pressure were to spill over into the economy as a whole, "the consequences would be widely felt," Gopinath warned.

For the USA, the world's largest economy, the IMF has cut its growth forecast by 1.2 percentage points to 4 percent.

The IMF cites the failure of a billion-dollar package for investments in social services and climate protection in the US Congress, which would have boosted the economy, as the main reason for this.

For China, the forecast was lowered by 0.8 percentage points to 4.8 percent.

In addition to the problems in the real estate sector and the corona lockdowns, the reason given by the IMF is the reduced willingness of consumers to buy.

With a view to the pandemic, the IMF assumes that Omikron will slow global growth somewhat in the first quarter.

However, this effect is expected to subside in the second quarter - provided that there are no new variants of the corona virus that will lead to far-reaching conditions, according to the IMF.

Inflation: Normalization expected next year

With a view to inflation, the expected normalization most recently forecast by the IMF for mid-2022 has been postponed to the coming year.

In 2023, prices are expected to rise much more slowly thanks to fewer problems with global supply chains, stabilized energy prices and tighter monetary policy overall.

In the industrialized countries, inflation should then only amount to 2.1 percent, in the emerging and developing countries 4.7 percent.

The IMF warned that the foreseeable tighter monetary policy to combat inflation, especially in the USA, would also put emerging and developing countries under pressure, for example through higher lending rates and weakening currencies.

"Surprisingly high inflation in the United States could prompt aggressive monetary tightening by the Federal Reserve," Gopinath said.

This would lead to a significant tightening of conditions in the global financial markets.

The US Federal Reserve (Fed) has already initiated its turnaround away from the aid programs to fight the Corona crisis towards a tighter monetary policy.

The key interest rate may be raised in March for the first time since the pandemic began.

Up to two further rate hikes are expected by the end of the year.

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The key interest rate is still in the extremely low range of 0.0 to 0.25 percent.

The inflation rate, on the other hand, climbed to 7 percent last year, the highest level in decades.

An increase in the key interest rate would slow down inflation, but also dampen the economy.

dpa