IMF Upgrades 2022 Global GDP Projection Just As Economic Growth Peaks

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by Tyler Durden
Tuesday, Jul 27, 2021 - 09:34 AM

There is no more sure way to guarantee that global economic growth has peaked than for the IMF to release an economic upgrade in its latest World Economic Outlook. And one day after Goldman slashed its 2022 US growth forecast and now expects GDP growth to shrink to just 1.5% - 2% by the second half of 2022 (from 8.5% in Q3 2021 and 5% in Q4), a far "sharper deceleration than consensus expects"...

... the echo chamber career economists at the IMF have done just that, predicting a 0.5% increase in Advanced economic growth in 2022 to 4.9% (while keeping its 2021 projection unchanged), while hiking its EM forecast more modestly by 0.2% to 5.2%.

Some more details from the latest just released World Economic Outlook:

  • US 2021 and 2022 GDP forecasts rasied by 0.6% and 1.4%, respectively, just as the US economy has peaked.
  • Euro Area forecasts raised by 0.2% and 0.5%;
  • China 2021 forecast cut by 0.3%, while hiking the 2022 forecast by 0.1%
  • Global 2021 GDP forecast unchanged, raised 2022 by 0.5%

In summary, the IMF said world output is still expected to grow 6% in 2021 following last year’s 3.2% drop, and shrink to 4.9% in 2022. It reduced the forecast for emerging-market expansion to 6.3% compared with the 6.7% increase projected in April, and raised the estimate for advanced economies by 0.5 percentage point to 5.6%. The U.K. got the biggest bump among major economies, with the IMF now forecasting a growth rate of 7% in 2021, just below the BOE's own estimates.

Some comments from the latest forecast:

"Recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches. Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high. Elevated inflation is also expected in some emerging market and developing economies, related in part to high food prices. Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics. Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions. There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action."

Alas, with China growth stumbling and US growth now clearly ebbing, all the IMF has done is confirm that its optimism will be wrong. Again.

At least the fund admitted it will likely be wrong noting that risks tilt to the downside, with uncertainty surrounding the global baseline remaining high. Delays in administering vaccines would allow new variants to spread, “with possibly higher risks of breakthrough infections among vaccinated populations.”

Addressing the growing divergence between advanced economies and emerging markets, the IMF said that “vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year -- almost all advanced economies -- and those that will still face resurgent infections and rising Covid death tolls... The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere.”

To address the widening gap, the taxpayer funded organization urged advanced economies to share their vaccine surplus with poorer nations.

“Multilateral action is needed to ensure rapid, worldwide access to vaccines, diagnostics, and therapeutics,” IMF Chief Economist Gita Gopinath said in a related blog. “This would save countless lives, prevent new variants from emerging and add trillions of dollars to global economic growth.”

Among the other IMF findings (courtesy of Bloomberg):

  • Emerging Asia saw the biggest downgrade among regions, with the IMF trimming the growth projection for this year by 1.1 percentage points to 7.5%.
  • A 3 percentage-point cut in the annual growth rate for India -- hurt by a severe second Covid-19 wave from March to May -- led the drop. Despite this, gross domestic product there is set to expand 9.5% in 2021.
  • The forecast for sub-Saharan Africa is unchanged relative to April, with worsening pandemic developments expected to weigh on the region’s recovery. A 0.9 percentage-point increase in South Africa’s forecast offset downward revisions in other countries.
  • The fund raised its GDP expansion outlooks for the U.S., the euro area, Latin America and the Middle East and Central Asia.
  • Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, the fund said. Elevated inflation is also expected in some emerging-market and developing economies, related in part to high food prices.