IMF lowers global growth outlook for 2022

The IMF is cutting its global economic forecast for 2022, as growth slows in the main drivers of post-pandemic growth — the US and China — and as inflation and supply chain disruptions create a drag on the recovery worldwide.

"The continuing global recovery faces multiple challenges as the pandemic enters its third year," IMF director of research Gita Gopinath said today. The IMF's latest World Economic Outlook update downgraded the 2022 global economic growth forecast by 0.5 percentage points to 4.4pc. It forecasts 2023 growth at 3.8pc. That compares with 5.9pc recorded in 2021.

Downgrades to the projected growth in the US and China account for about 0.2 percentage points each in this year's revised global forecast.

In the US, the lower projected growth for this year, down by 1.2pc percentage points from the previous forecast to 4pc, reflects the lower prospect of passing President Joe Biden's signature Build Back Better social and climate spending proposal and the US Federal Reserve's decision to end its stimulus program more quickly than expected.

China's projected growth rate of 4.8pc for this year was also revised lower because of government-mandated retrenchment of the real estate sector and a weaker-than-expected recovery in private consumption, Gopinath said.

The US and China were the two main forces behind the global recovery from the steep fall in 2020 caused by the Covid-19 pandemic and economic disruptions in its wake. Consequently, a slowdown in the world's two largest economies is going to be felt on a global scale. China's zero-tolerance policy toward the pandemic has not only slowed its growth but could worsen global supply disruptions.

And while the pandemic and its effects continue to feature prominently in the IMF report, the January update is flagging inflation as a much greater factor affecting global growth prospects.

High inflation is expected to last longer than previously expected given ongoing supply chain disruptions and high energy prices continuing in 2022, the IMF said.

The IMF forecast traditionally was used by many economists, including at the IEA, to model oil demand projections. But an uncertain course of the pandemic and uneven global recovery from its effect has made for a more tenuous correlation between economic growth and oil demand trajectories.

The specter of inflation

The rebound from the initial post pandemic phase began to lose momentum late in 2021, and supply side bottlenecks are prominent among the reasons for headwinds facing the global economy, Argus chief economist David Fyfe said, adding that "this is stoking inflation in the global economy."

Changing inflation expectations in the US have prompted the Federal Reserve to consider raising interest rates at a faster pace than previously expected, lending some support to the US dollar.

"That is going to have implications particularly for some of the more indebted emerging market importer economies that are among the most oil and commodity intensive in terms of economic growth," Fyfe said on 24 January at the Argus Americas Crude Summit in Houston, Texas. The slowdown in China is also relevant given that the country accounted for 25pc of global commodity trade in 2020.

Even with the macroeconomic headwinds, oil market demand recovery is expected to continue this year. Argus Consulting expected global oil demand to grow by 3.7mn b/d this year, potentially bringing it close to the pre-pandemic levels by the third quarter.

By Haik Gugarats