In its World Economic Outlook, the IMF said its global growth forecast for 2021 is now 5.9% compared to the previous estimate of 6% in July. The forecast for 2022 remained unchanged at 4.9%.
“This modest revision of securities, however, masks significant downgrades for some countries,” the IMF said in the report. “The outlook for the group of low-income developing countries has darkened considerably due to the worsening pandemic dynamics. The deterioration also reflects a more difficult short-term outlook for the advanced economies group, in part due to supply disruptions. “
The 2021 growth forecast for the United States has been reduced from 7% to 6% due to supply constraints. Further, the report warned that if the United States did not adopt President Joe Biden’s $ 4 trillion infrastructure package, it would lower the forecast for the United States even further.
China’s growth forecast for this year has been reduced by just 0.1 percentage point to 8%. Growth projections for Japan, the United Kingdom, Canada and Germany have also been revised downwards. At the same time, the euro zone’s growth outlook for 2021 has been raised to 5%, from 4.6%.
After the report was released, gold prices posted double-digit gains, as December’s Comex gold futures rose more than $ 12 to $ 1,768.60, up 0 , 73% on the day. At the same time, the increase in demand for gold for safe-haven securities was somewhat dampened by gains in the US dollar index.
The IMF has also warned that the recovery from COVID-19 appears increasingly divided.
“Overall, the risks to the economic outlook have increased and political compromises have become more complex,” Gita Gopinath, the fund’s chief economic research officer, said in the report. “The dangerous divergence in economic prospects between countries remains a major concern. “
The disparity in this economic recovery stems mainly from what the IMF calls the “great vaccine divide,” noting that 96% of the population in low-income countries remains unvaccinated.
As fears of growing stagflation worry investors in the last quarter of the year, the IMF report said it projected inflation to return to 2% in advanced economies by the middle of the year. next. However, emerging and developing countries are still expected to experience 4.9% inflation next year.
For now, however, inflation risks are “on the upside” while growth risks are “on the downside,” the report noted. “Inflation risks are on the upside and could materialize if the pandemic supply-demand mismatches persist longer than expected,” the IMF said.
For central banks, that means being prepared to quickly change tack and tighten monetary policies if inflation is more persistent.
“While central banks can generally look through transient inflationary pressures and avoid tightening until underlying price dynamics are clearer, they must be prepared to act quickly if the recovery strengthens faster than forecast or if the risks of rising inflation expectations become tangible, ”the report said. added.
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