While 2021 was a year of strong economic recovery, that recovery was neither universal nor complete. Unfortunately, prospects for 2022 now look worse than the IMF forecast last October: the main culprits, it argues, being the Omicron Covid-19 variant, supply shortages and unexpectedly high inflation. Downgrades in forecasts are particularly sharp for the US and China. Uncertainties are large, with risks concentrated on the downside. Above all, it is easier to argue that the fund’s base case is too optimistic than pessimistic.
These are my conclusions from the IMF’s World Economic Outlook Update. A year ago, the fund forecast global economic growth in 2021 at 5.5 per cent, with growth of high-income countries at 4.3 per cent. It now estimates that global growth last year was 5.9 per cent, with growth in high-income countries at 5.0 per cent. The improvement in emerging and developing countries was far smaller: a year ago, growth in 2021 was forecast at 6.3 per cent, against the 6.5 per cent it now estimates. In general, notes the fund, whether outcomes in 2021 improved over what had been forecast in late 2020 depended on achieving high levels of vaccination: vaccines are as much an economic policy as a health policy. (See charts.)
The forecast downgrades for 2022 since October of last year are not dramatic: the world economy is still forecast to grow at an above trend rate of 4.4 per cent, with high-income countries growing at 3.9 per cent and emerging and developing countries 4.8 per cent. The downgrades are by 0.5, 0.6 and 0.3 percentage points respectively. They are particularly sharp for the US, with a growth forecast for 2022 down by 1.2 percentage points to 4 per cent, and China, with a growth forecast reduced by 0.8 percentage points to 4.8 per cent.