IMF Cuts Global Growth Outlook Amid Inflation and Supply-Chain Disruptions

January 26, 2022

Economic growth across the globe and in the U.S. is expected to moderate more severely than previously expected, according to the latest forecast from the International Monetary Fund (IMF). The group attributes the slowdown to surging inflation, the Omicron variant of the coronavirus, and persistent supply-chain disruptions.

The IMF now expects the global economy to expand at a rate of 4.4% this year, down from an estimated 5.9% in 2021. The group’s prior forecast, made in October, projected growth of 4.9% in 2022.

The forecast for U.S. growth was slashed even more, with the IMF now expecting 4% growth in 2022, a reduction of 1.2 percentage points from October’s estimate. That is the largest downgrade for any major country for which the IMF provides forecasts.

The reduced expectations for U.S. growth are due primarily to the continuation of high inflation. The IMF attributes much of the surge in prices to ongoing supply-chain disruptions, which have lasted longer than the group previously anticipated. The Federal Reserve’s plans to raise interest rates also diminished the outlook for U.S. growth.

While the U.S. saw the biggest downgrade in the IMF’s forecast, most regions throughout the world have seen lowered forecasts. Growth in the eurozone was slashed by 0.4 percentage points, led by a 0.8 percentage point downgrade for Germany, whose large manufacturing sector is particularly exposed to supply-chain disruptions.

China’s outlook was cut by 0.8 percentage points, with the IMF now anticipating growth of 4.8%. The IMF cited problems with China’s real estate sector as being a major drag on the nation’s economic prospects.

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