Slowdowns in the world’s two biggest economies — the United States and China — are likely to be larger than expected this year, dragging down output on every continent and reducing global growth, a new report warned on Tuesday.
“The global economy enters 2022 in a weaker position than previously expected,” the International Monetary Fund wrote in its latest World Economic Report, as rich and poor nations around the world have been afflicted by higher inflation, supply chain choke points, and Covid-related shutdowns and worker shortages.
But the primary reason the I.M.F. reduced its estimated global growth rate to 4.4 percent from the 4.9 percent it projected just three months ago was because of developments in the two economic behemoths.
In the United States, the fund said the failure to pass the Biden administration’s sweeping $2.2 trillion infrastructure and social policy package and the Federal Reserve’s tighter monetary policy were among the reasons it lowered the U.S. growth forecast by 1.2 percentage points to 4 percent.
In China, which has powered much of the world’s growth in recent years, the I.M.F. pointed to the collapse of the real estate sector and the zero-Covid policy that has restricted travel, shut businesses and reduced consumption. The report lowered the country’s growth forecast by 0.8 percentage points to 4.8 percent.
The fund emphasized that the forecast was subject to a high level of uncertainty — about the course of the coronavirus, climate-related natural disasters, supply chain disruptions and rising political tensions. But with the pandemic entering its third year, a note of pessimism underlay the outlook. “Risks overall are to the downside,” Gita Gopinath, the I.M.F.’s first deputy managing director, wrote in an accompanying blog post.
The dimmed economic prospects come at a time when governments have less room to maneuver in how they spend their money. Debt levels have soared over the past two years as countries struggled with the health crisis caused by the pandemic and funneled aid to their citizens. Public spending is unlikely to reach the same levels in the future.
At the same time, prices — particularly for food and fuel — are rising. Inflation fears are nudging up interest rates as central banks look for ways to discourage people from borrowing money to buy a car or invest in a business and ratchet back demand for products that are in short supply. Creeping interest rates, though, risk not only slowing economic growth, but also burdening poorer nations with even bigger debts far into the future.
Ms. Gopinath said that however difficult the recovery had been in wealthier nations, emerging economies had been hit the hardest with weak growth. Roughly 70 million more people are living in extreme poverty than before the pandemic.
Covid continues to maintain its grip and the threat of a new variant that is deadlier than Omicron remains, but the fund expects severe illnesses, hospitalizations and deaths caused by the coronavirus to drop to low levels by the end of the year.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said that the impact of this latest surge was not as devastating: “We’re seeing evidence that Omicron is holding back economic activity, but nowhere near to same extent as the virus did before.”
