## A Disrupted Global Recovery

_IMF Blog, January 25, 2022_

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**Canonical URL:** [A Disrupted Global Recovery](https://www.imf.org/en/blogs/articles/2022/01/25/blog-a-disrupted-global-recovery)

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## Bibliographic details
- Authors: Gita Gopinath
- Published: January 25, 2022

---

### Overview
- Author: Gita Gopinath
- Date: January 25, 2022
- Theme: The global recovery in the third year of the pandemic is slowing as economies face supply disruptions, higher inflation, record debt, and persistent uncertainty.

### Growth projections and revisions
- IMF projects global growth in 2022 at 4.4 percent.
- This 2022 projection is 0.5 percentage point lower than previously forecast, mainly due to downgrades for the United States and China.
- Global growth is expected to slow to 3.8 percent in 2023.
- The 2023 projection is 0.2 percentage point higher than in the October 2021 WEO, reflecting a pickup after current drags dissipate.
- Specific drivers of downgrades:
  - United States: lower prospects of legislating the Build Back Better fiscal package, earlier withdrawal of extraordinary monetary accommodation, and continued supply disruptions.
  - China: continued retrenchment of the real estate sector and weaker-than-expected recovery in private consumption.
  - Other countries (e.g., Germany): markdowns due to supply disruptions.
- Omicron effects: expected to weigh on activity in Q1 2022 but to fade starting in Q2 2022.

### Inflation outlook
- 2022 inflation forecasts have been revised up for both advanced and emerging market and developing economies.
- Elevated price pressures are expected to persist for longer.
- Assumptions for 2022:
  - Supply-demand imbalances decline based on industry expectations of improved supply and a gradual rebalancing of demand from goods to services.
  - Extraordinary policy support is withdrawn.
  - Energy and food prices are expected to grow at more moderate rates in 2022 according to futures markets.
- Conditional expectation: Assuming inflation expectations remain anchored, inflation is expected to subside in 2023.

### Divergence in recovery and poverty impacts
- Advanced economies are projected to return to pre-pandemic trend in 2022.
- Several emerging markets and developing economies are projected to have sizeable 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 in 2021, setting back poverty reduction by several years.

### Key risks and uncertainties
- Downside risks dominate the forecast:
  - Emergence of deadlier variants could prolong the crisis.
  - China’s zero-COVID strategy could exacerbate global supply disruptions.
  - Financial stress in China’s real estate sector could spread to the broader economy with wide ramifications.
  - Higher inflation surprises in the United States could lead to aggressive Federal Reserve tightening and sharply tighter global financial conditions.
  - Rising geopolitical tensions and social unrest.
- The forecast is subject to high uncertainty and requires policy agility.

### Global efforts to end the pandemic
- Priority: break the hold of the pandemic through widespread vaccination, testing, and access to therapeutics, including newly developed anti-viral medications.
- Vaccination disparity:
  - Low-income countries: 4 percent of the population are fully vaccinated.
  - High-income countries: 70 percent of the population are fully vaccinated.
- Urgent needs:
  - Close the $23.4 billion financing gap for the Access to COVID-19 Tools (ACT) Accelerator.
  - Incentivize technological transfers to diversify global production of critical medical tools, especially in Africa.
  - Provide assistance to boost absorptive capacity and improve health infrastructure in low-income developing countries.

### National policy guidance
- Policies should be tailored to country-specific circumstances, including extent of recovery, underlying inflationary pressures, and available policy space.
- Fiscal policy:
  - Fiscal deficits in most countries are projected to shrink in 2022 as policy space diminishes in some economies and recoveries strengthen in others.
  - Fiscal priority should continue to be the health sector; transfers should be effectively targeted to the worst affected.
  - Initiatives should be embedded in medium-term fiscal frameworks that lay out a credible path for public debt sustainability.
- Monetary policy:
  - Where inflation is broad-based alongside a strong recovery (e.g., United States), or where high inflation risks becoming entrenched, extraordinary monetary support should be withdrawn.
  - Several central banks have already begun raising interest rates to preempt price pressures.
  - Clear communication of the policy transition toward tightening is key to ensure orderly market reactions.
  - Where core inflationary pressures remain subdued and recoveries are incomplete, monetary policy can remain accommodative.

### Financial stability and external vulnerabilities
- As monetary policy tightens globally, economies must adapt to higher interest rates.
- Emerging market and developing economies with large foreign currency borrowing and external financing needs should:
  - Prepare for possible turbulence in financial markets.
  - Extend debt maturities as feasible.
  - Contain currency mismatches.
  - Use exchange rate flexibility to help macroeconomic adjustment.
  - Consider foreign exchange intervention and temporary capital flow management measures where needed to provide monetary policy space to focus on domestic conditions.

### Debt relief and low-income countries
- Low-income countries face increasing difficulty servicing debt as interest rates rise.
- 60 percent of low-income countries are already in or at high risk of debt distress.
- Recommendation: Revamp the G20 Common Framework to deliver more quickly on debt restructuring.
- G20 creditors and private creditors should suspend debt service while restructurings are being negotiated.

### Social and climate policy priorities
- Education: policies needed to reverse large learning losses suffered by children, especially in developing countries.
  - On average, students in middle-income and low-income countries had 93 more days of nation-wide school closures than those in high income countries.
- Climate: accelerate efforts to reach net-zero carbon emissions by 2050 through:
  - Carbon pricing mechanisms.
  - Green infrastructure investment.
  - Research subsidies.
  - Financing initiatives to enable all countries to invest in mitigation and adaptation.

### Human and economic toll to date
- Global death toll at the start of the third year of the pandemic: 5.5 million deaths.
- Accompanying economic losses are expected to be close to $13.8 trillion through 2024 relative to pre-pandemic forecasts.
- The author notes these losses would have been much worse without scientific, medical, and policy responses.

*Source: A Disrupted Global Recovery — IMF blog page by Gita Gopinath, January 25, 2022.*

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## References

- [record debt](https://blogs.imf.org/2021/12/15/global-debt-reaches-a-record-226-trillion/)
- [rising inflation](https://blogs.imf.org/2021/12/03/addressing-inflation-pressures-amid-an-enduring-pandemic/)
- [IMF’s latest World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2022/01/25/world-economic-outlook-update-january-2022)
- [https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-1.jpeg](https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-1.jpeg)
- [https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-2.jpeg](https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-2.jpeg)
- [divergence in prospects](https://blogs.imf.org/2021/07/27/drawing-further-apart-widening-gaps-in-the-global-recovery/)
- [https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-3.jpeg](https://www.imf.org/wp-content/uploads/2022/01/WEO-Blog-Chart-3.jpeg)
- [widespread vaccination, testing, and access to therapeutics](https://blogs.imf.org/2021/05/21/a-proposal-to-end-the-covid-19-pandemic/)
- [prepare for possible turbulence](https://blogs.imf.org/2022/01/10/emerging-economies-must-prepare-for-fed-policy-tightening/)
- [revamped to deliver more quickly](https://blogs.imf.org/2021/12/02/the-g20-common-framework-for-debt-treatments-must-be-stepped-up/)
- [https://www.imf.org/wp-content/uploads/2022/01/WEO-Chart-Jan-2022-projections-Table.png](https://www.imf.org/wp-content/uploads/2022/01/WEO-Chart-Jan-2022-projections-Table.png)

_Source: https://www.imf.org/en/blogs/articles/2022/01/25/blog-a-disrupted-global-recovery_