Economic Indicators Signal Diminished Growth Momentum at Start of Year

IMF Blog, February 24, 2022

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The economic recovery continues, though the pace of the recovery has slowed.
High-frequency economic indicators show growth momentum has slowed going into 2022, consistent with expectations of a weak start to the year due to the spread of the Omicron variant and persistent supply-chain disruptions.
Activity is projected to pick up in the second quarter of the year as the variant’s impact fades.

The global forecast was lowered in January to a still-healthy 4.4 percent expansion this year.
This was down from an October projection of 4.9 percent, amid reduced growth prospects for the United States and China, the two largest economies.

Composite gauges of manufacturing and service sector activity in many Group of Twenty economies highlight recent softening.
In some economies, the purchasing managers’ index indicated a slower pace of expansion in January compared with the prior two months.
A few PMI gauges, including Australia and Spain, swung below 50—the threshold signaling a contraction.

Advanced economies have experienced pandemic strains and mismatches between supply and demand that have continued to boost inflation and weigh on the recovery.
Temporarily reduced mobility from the rapid spread of the Omicron variant has dampened service sector activity in the euro area, Japan, and the United Kingdom.
Continued supply disruptions have also weighed on activity in the euro area and United Kingdom.
In the United States, the recovery has been strong, but the virus has dented consumer sentiment somewhat.

Pandemic curbs and reduced policy support are weighing on activity in emerging economies.
Other recent data pointing to softer momentum include lower industrial production in Brazil.
In China, tighter mobility restrictions have resulted in weaker-than-expected retail sales; a decline in real estate investment and tighter travel restrictions have also represented headwinds.

Inflation has been higher than expected in many economies.
Financial markets remain volatile as geopolitical tensions have increased.
These obstacles, combined with reduced growth momentum, underline risks to the recovery trajectory.

Strong international cooperation is needed to:
- End the pandemic.
- Navigate monetary tightening.
- Shift focus to fiscal sustainability.

Tryggvi Gudmundsson, February 24, 2022 — IMF Blog