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  13 Oct 2021, 13:03
Update : 13 Oct 2021, 13:05

IMF warns supply snarls slowing global recovery

  WASHINGTON, Oct 13, 2021 (BSS/AFP) - Worldwide supply chain disruptions are

driving price increases and draining momentum out of economies recovering
from the Covid-19 pandemic, the IMF warned on Tuesday.

  The ongoing hit from the pandemic and the failure to distribute vaccines
worldwide is worsening the economic divide and darkening prospects for
developing nations, the IMF said in its latest World Economic Outlook.

  The global economy is expected to grow 5.9 percent this year, only slightly
lower than projected in July, before slowing to 4.9 percent in 2022, the
report said.

  But the overall figures mask large downgrades and ongoing struggles for
some countries, including the United States, Germany and Japan that are
feeling the impact of supply bottlenecks, IMF chief economist Gita Gopinath
said.

  "This recovery is really quite unique," she told AFP on the sidelines of
the annual meetings of the International Monetary Fund and World Bank.

  Despite a strong return in demand, "the supply side has not been able to
come back as quickly," hampered in part by the spread of the Delta variant of
Covid-19, which has made workers reluctant to return to their jobs.

  Those labor shortages are "feeding into price pressures" in major
economies, she said, slowing growth expectations this year.

  Energy prices have hit multi-year highs in recent days, with oil above $80
a barrel, weighing on households.

  But Gopinath said she expects energy prices to begin to retreat by the end
of the first quarter of 2022.

  - Darkening prospects -

  In low-income developing countries, the outlook "has darkened considerably
due to worsening pandemic dynamics," she said in a blog post on the new
forecasts.

  The setbacks, which she blamed on the "great vaccine divide," will impact
the restoration of living standards, and a prolonged pandemic downturn "could
reduce global GDP by a cumulative $5.3 trillion over the next five years,"
she warned.

  "The dangerous divergence in economic prospects across countries remains a
major concern," Gopinath said.

  Advanced economies are expected to regain "pre-pandemic trend path in 2022
and exceed it by 0.9 percent in 2024," she said.

  However, in emerging market and developing economies, excluding China,
output "is expected to remain 5.5 percent below the pre-pandemic forecast in
2024."

  Amid the danger of long-term scarring, "The foremost policy priority is
therefore to vaccinate at least 40 percent of the population in every country
by end-2021 and 70 percent by mid-2022," she said.

  - Delicate US balancing act -

  The world's largest economy has benefitted from massive fiscal stimulus,
but the Delta wave and the supply issues have undermined progress, prompting
the IMF to slash the US growth forecast for this year to six percent, a full
percentage point off the July figure.

  US growth is expected to slow to 5.2 percent next year, slightly faster
than previously expected, but policymakers will face a delicate balancing act
amid risks of rising inflation and lagging employment, the fund noted.

  Wages also threaten to rise as employers compete for scarce workers,
Gopinath noted.

  While inflation is expected to return to "more normal levels" by mid-2022
in most countries, it could take longer in the United States, she told
reporters.

  "There is tremendous uncertainty, we have never seen a recovery of this
kind," she said, noting labor shortages plaguing employers even amid high
unemployment, and supply unable to meet demand.

  US consumer prices rose 5.3 percent annually in August, more than double
the Federal Reserve's two-percent goal. Markets on Wednesday will be watching
for the government's September inflation report.

  US Treasury Secretary Janet Yellen said she believes the price increases
will be "transitory."

  "But I don't mean to suggest that these pressures will disappear in the
next month or two," she told CBS News. "This is an unprecedented shock to the
global economy."

  However, if higher inflation becomes entrenched, it could force central
banks to respond aggressively, and rising interest rates would slow the
recovery, the IMF cautioned.

 

 

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