IMF cuts global growth outlook as supply bottlenecks hobble pandemic recovery

Global manufacturing activity has been slammed by shortages of key components such as semiconductors.
Global manufacturing activity has been slammed by shortages of key components such as semiconductors.PHOTO: AFP

WASHINGTON (REUTERS) - Persistent supply chain disruptions and pricing pressures are constraining the global economy's recovery from the Covid-19 pandemic, the International Monetary Fund (IMF) said on Tuesday as it cut growth outlooks for the United States and other major industrial powers.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9 per cent from the 6 per cent forecast it made in July. It left the 2022 global growth forecast unchanged at 4.9 per cent.

"This modest headline revision, however, masks large downgrades for some countries," the IMF said in the report. "The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions."

Global manufacturing activity has been slammed by shortages of key components such as semiconductors, clogged ports and a lack of cargo containers, and a labour crunch as global supply chains optimised for efficiency have struggled to return to normal after pandemic-induced shutdowns last year.

Demand-supply mismatches, fuelled in part by excess savings built up in wealthy countries, have driven up prices, causing spikes in inflation. The IMF said it expects inflation to return to pre-pandemic levels next year, but warned that persistent supply disruptions risked unanchoring inflation expectations.

The United States is bearing the brunt of these effects, and the IMF slashed its 2021 US growth forecast by a full percentage point, to 6 per cent, from 7 per cent in July - a level that was seen as the strongest pace since 1984.

US growth could shrink further, the IMF said, because its forecasts assume that a deeply divided US Congress will approve President Joe Biden's proposed infrastructure and social spending worth US$4 trillion (S$5.4 trillion) over a decade.

Lawmakers are now trying to achieve consensus on a smaller package, and the IMF said a significant reduction would reduce growth prospects for the United States and its trading partners.

The report, which was issued at the outset of the IMF and World Bank autumn meetings, also cut growth forecasts for other industrial economies. German growth was reduced by half a percentage point from the July forecast to 3.1 per cent, while Japan's growth was lowered 0.4 percentage point to 2.4 per cent.

The IMF's forecast for British growth this year fell only 0.2 percentage point to 6.8 per cent, giving it the fastest growth forecast among the Group of Seven economies.

China's 2021 growth forecast was trimmed by 0.1 percentage point to 8 per cent, as the IMF cited a faster-than-expected scaleback of public investment spending. India's forecast was unchanged at 9.5 per cent, but prospects in other emerging Asian countries have been diminished due to a worsening of the pandemic.

The IMF cut its forecast by 1.4 points for the Asean-5 grouping of Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Some commodity-exporting countries such as Nigeria and Saudi Arabia saw modest growth upgrades due to higher oil and commodity prices.

The report also warned of a dangerous divergence in economic prospects fuelled by "the great vaccine divide", with low-income countries, where 96 per cent of the population remains unvaccinated, facing lower growth for longer periods, more poverty, and the prospect of de-anchored inflation expectations.

"About 65 million to 75 million additional people are estimated to be in extreme poverty in 2021 compared to pre-pandemic projections," the report said, adding that low-income countries needed some US$250 billion in additional spending to fight Covid-19 and regain their pre-pandemic growth path.

Currently, these countries are forecast to have cumulative output next year that is 6.7 per cent below pre-pandemic levels.

Advanced economies, meanwhile, will have 2022 output nearly 1 per cent above pre-pandemic levels, the IMF said.