The International Monetary Fund (IMF) on Tuesday released the World Economic Outlook update which downgrades global growth rate (half a percentage point than what it predicted in the October World Economic Outlook(WEO). India’s growth forecast also comes down half a percent point as the new data predicts 9 percent Growth domestic product (GDP) for the country. India’s GDP projection for the financial year 23 and 24 is raised by half a percentage point as they now stand at 9 and 7.1 percent.
Worry induced by new variant:
The report warns that new variants could prolong the pandemic and induce renewed economic disruptions.Higher inflation is predicted with supply chain disruptions,local wage pressures and energy price volatility.
The report further states that elevated inflation can stay longer as supply chain disruptions and high energy prices will continue in 2022. It places high expectations on monetary policies of major economies to respond to supply-demand imbalance. Important to note here is that the US Federal Reserve has made it clear that their primary focus has shifted from stimulating the economy to fighting inflation.
World’s two biggest economies:
For China and the US, the report states that zero-tolerance COVID-19 policy and financial stress among property developers have induced a 0.8 percent point downgrade in China’s numbers whereas for the US report states that revised assumption removing the Build Back Better fiscal policy package from the baseline, withdrawal of monetary accommodation and supply shortages have resulted in 1.2 percent downward revision.
Monetary Policy tightening:
“Monetary policy in many countries will need to continue on a tightening path to curb inflation pressures, while fiscal policy—operating with more limited space than earlier in the pandemic—will need to prioritise health and social spending while focusing support on the worst affected.”the IMF said in its report.