World Economic Outlook Briefing Transcript
IMF News, January 25, 2022
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- Published: January 25, 2022
Global outlook and growth projections
- Global growth in 2022 projected at 4.4 percent, which is .5 percentage points lower than previously forecast.
- Global growth expected to slow to 3.8 percent in 2023.
- Downgrades concentrated mainly in the United States and China:
- United States: downgrade reflects lower prospects of legislating the build back better fiscal package, earlier withdrawal of extraordinary monetary accommodation, and continued supply disruptions.
- China: downgrade reflects continued retrenchment of the real estate sector and weaker than expected recovery in private consumption.
- Supply/demand imbalances assumed to decline over 2022 as demand re-balances from goods to services and extraordinary policy support is withdrawn.
- Energy and food prices are expected to grow at more moderate rates in 2022; inflation is expected to subside in 2023 assuming inflation expectations remain anchored.
- Advanced economies projected to return to pre-pandemic trend this year; several emerging market and developing economies projected to have sizable output losses into the medium-term.
- The number of people living in extreme poverty is estimated to have been around 70 million higher than pre-pandemic trends last year.
Inflation, monetary policy, and financial markets
- IMF revised up its 2022 inflation forecast for both advanced and emerging market and developing economies with elevated price pressures expected to persist for longer.
- Omicron expected to weigh on activity in Q1 2022, with effects fading starting Q2 2022.
- Major central banks, including the U.S. Fed, are expected to exit highly accommodative monetary policies in 2022; interest rates likely to rise.
- Markets may experience corrections as interest rates rise; orderly adjustment depends on well-telegraphed communication from central banks.
- Where inflation is broad-based and recovery strong, extraordinary monetary policy support should be withdrawn.
- Where core inflationary pressures remain subdued and recovery is incomplete, monetary policy can remain accommodative.
- Emerging market and developing economies with large foreign currency borrowing and external financing needs should:
- Prepare for possible turbulence by extending debt maturities as feasible and containing currency mismatches.
- Use exchange rate flexibility to help adjustment.
- Consider foreign exchange intervention and temporary capital flow measures to give monetary policy space to focus on domestic conditions.
Pandemic status, vaccines, testing, therapeutics
- At the start of the third year of the pandemic the global death toll has risen to 5.5 million deaths.
- Accompanying economic losses are expected to be close to $13.8 trillion through 2024 relative to pre-pandemic forecasts.
- Vaccination disparities:
- Only 4 percent of the population of low-income countries are fully vaccinated versus 70 percent in high-income countries.
- The IMF pandemic plan target was 40% coverage by the end of 2021; 86 countries did not meet that target.
- Low-income countries had only 4% fully vaccinated by the end of last year.
- Constraints identified:
- Initially: insufficient deliveries, poor visibility on deliveries, limited shelf life.
- Increasingly: absorptive capacity limits (health infrastructure, capacity to administer shots) and vaccine hesitancy.
- Urgent financing needs:
- Close the around $23 billion financing gap for the ACT Accelerator.
- About $16 billion of that should be in the form of grants.
- Need to scale up testing and access to therapeutics (including newly developed antiviral medications) alongside vaccines.
Debt, financing, and lending frameworks
- Record debt and rising inflation constrain many countries' ability to address renewed disruptions.
- Low-income countries: 60 percent are already in or at high risk of debt distress.
- Several low-income countries are paying almost 3% of GDP for debt-service payments; rising interest rates will increase debt-service burdens.
- G20 common framework:
- Designed to coordinate Paris Club, non-Paris Club, and private creditors to deliver debt restructuring.
- Three countries have approached the G20 to use the framework; most progress made on Chad, but process is slow and more action is needed.
- IMF view: G20 creditors and private creditors should suspend debt service while restructurings are negotiated.
- The G20 common framework needs to be revamped to deliver more quickly.
- IMF lending stance:
- 2020–2021: emergency financing facilities were appropriate for the acute phase of the pandemic.
- As the crisis phase recedes, IMF expects greater use of traditional upper credit tranche lending programs with associated conditionalities to address structural imbalances.
Policy priorities and recommendations
- Break the hold of the pandemic via global effort on widespread vaccination, testing, and access to therapeutics.
- Provide assistance to boost absorptive capacity and improve health infrastructure in low-income developing countries.
- Fiscal policy:
- Remain tailored to country-specific circumstances, including recovery stage, underlying inflationary pressures, and available policy space.
- Fiscal and monetary policies should work in tandem.
- Given uncertainty, policies must remain agile and adapt to incoming economic data.
- Fiscal deficits in most countries are projected to shrink in 2022; fiscal priority should continue to be the health sector.
- Transfers should be effectively targeted to the worst affected and embedded in medium-term fiscal frameworks to ensure public debt sustainability.
- Monetary policy:
- Communicate well the transition toward tightening to ensure orderly market reaction.
- Where appropriate, withdraw extraordinary monetary support.
- Support for vulnerable households:
- Well-targeted government support to highly vulnerable households facing large increases in living costs (e.g., energy) is appropriate.
- For emerging market and developing economies facing higher rates:
- Extend debt maturities, contain currency mismatches, use exchange rate flexibility, and consider temporary capital flow measures or FX intervention if needed.
- Education and climate:
- Policy initiatives needed to reverse large learning losses suffered by children, especially in developing countries.
- Bigger push required to get to net zero carbon emissions by 2050 via carbon pricing mechanisms, green infrastructure investment, research subsidies, and financing initiatives so all countries can invest in mitigation and adaptation.
Risks and uncertainty
- Forecast subject to high uncertainty; overall risks are to the downside.
- Key downside risks include:
- Emergence of deadlier variants that prolong the crisis.
- China's zero Covid strategy exacerbating global supply disruptions.
- Financial stress in China’s real estate sector spreading through the broader economy.
- Higher inflation surprises in the U.S. eliciting aggressive Fed tightening and sharply tightened global financial conditions.
- Rising geopolitical tensions and social unrest.
- Omicron is associated with less severe illness than Delta and its surge in infections is expected to decline relatively quickly, but Q1 2022 activity impact is expected.
Regional and country notes (selected)
- India:
- For fiscal year '21-'22 a slight downgrade of -0.5 percentage points; growth for the previous fiscal is now at 9 percent.
- For fiscal year '22-'23 a slight upgrade of 0.5 percentage points; growth for this year now at 9 percent.
- Downgrade for '21-'22 driven by Omicron-related localized lockdowns and mobility restrictions impacting Q1.
- United Kingdom:
- Recovery weaker than the U.S.; UK expected to return to pre-pandemic levels this year.
- Inflation has risen sizably; energy prices important recent driver; services inflation and labor shortages rising.
- Recommendation: well-targeted support to highly vulnerable households facing sharp cost increases.
- Germany:
- Strong downgrade driven by weak second half of last year and prolonged supply disruptions, notably in auto sector.
- Growth expected to pick up in second half of 2022 supported by excess household savings.
- Egypt and MENA:
- MENA region upgrade: growth for 2022 expected to be 4.4 percent, an upgrade of .3.
- Improvement driven by stronger prospects for oil exporters due to higher oil prices.
- Egypt upgraded by .4 to projected growth of 5.6 percent in 2022; pandemic impact managed well, though tourist sector remains uncertain.
- Brazil and Mexico:
- Significant downgrades in 2022.
- Brazil: downgrade reflects prior strong recovery (back to pre-pandemic levels by start of last year), sizable monetary policy rate increases to address inflation, and moderating export prices (e.g., iron ore).
- Mexico: weak second half of last year due to supply disruptions, Omicron impacts, and some monetary tightening.
- Nigeria:
- Unchanged growth projection for 2022 reflecting offsetting factors: stronger non-oil momentum from second half of last year and Omicron drag.
- IMF recommendation to scale back poorly targeted fuel subsidies to create fiscal space for health and social spending.
- Nigeria’s public debt-to-GDP ratio is relatively low compared to other low-income countries, providing more space to support health response and recovery.
- China:
- Downgrade driven by weaker private consumption recovery and retrenchment in real estate; baseline includes those domestic factors, though global financial tightening would affect China as well.
International Monetary Fund — World Economic Outlook Briefing Transcript