Author: Don Obrien

IMF downgrades global growth outlook as developing countries lag on vaccinations

The International Monetary Fund (IMF) on Tuesday downgraded prospects for economic growth globally, noting that while advanced economies are set to rebound in the near-term, low-income developing countries continue to struggle with the spread of COVID-19.

“The main reason for that has been Delta and supply side disruptions,” IMF Chief Economist Gita Gopinath told Yahoo Finance Tuesday. In the report, Gopinath warned that “the dangerous divergence in economic prospects across countries remains a major concern.”

The IMF updated its World Economic Outlook, lowering its forecast for global growth in 2021 to 5.9% (from 6.0% in its July forecast). It maintained its projection for 4.9% growth in 2022.

But the report notes that while growth in advanced economies is largely expected to return to pre-pandemic trend in 2022, emerging market and developing economies (excluding China) are forecast to remain 5.5% below trend in 2024.

The World Economic Outlook said this could result in “a larger setback to improvements in their living standards.”

The report specifically detailed downgrades in the outlook for five Southeast Asian countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), where the IMF slashed 2021 growth prospects to 2.9% from 4.3%.

Worker shortages and COVID-19 restrictions in major exporter countries like Vietnam have already been felt in advanced nations like the U.S., where companies like Nike have been pinched on inventory.

FILE - In this May 3, 2020, file photo, containers are loaded on a ship at the Saigon port in Ho Chi Minh City, Vietnam. The World Bank on Tuesday, Sept. 28, 2021, cut its economic growth forecast for developing countries in East Asia due to the impact of the coronavirus’s delta variant and called on governments to help the poor and small businesses avoid long-term damage. (AP Photo/Hau Dinh, File)

Containers are loaded on a ship at the Saigon port in Ho Chi Minh City. (AP Photo/Hau Dinh, File)

Those supply disruptions also led the IMF to downgrade some growth projections for advanced nations as well.

The IMF now expects the U.S. economy to grow by 6.0% this year, a downgrade from the 7.0% it had forecast in July. But the IMF expects a slightly better 2022, projecting 5.2% growth (an upgrade from the 4.9% it forecast in July).

“Consumption just flatlined,” Gopinath told Yahoo Finance, adding that the Delta variant also broadly held back what would have been a strong return to contact-intensive services.

The IMF also downgraded 2021 growth prospects for Germany, Spain, Japan, the United Kingdom, and Canada. China is projected to grow by 8.0% in 2021, a tick down from the 8.1% it had forecast in July.

Broadly, the IMF emphasized the need to expand vaccination campaigns targeted at low-income countries, where the report said 96% of the population remains unvaccinated.

The World Economic Outlook also warned policymakers to be mindful of the risks of inflation, as supply chain problems continue to push prices up.

“Our modal forecast is for inflation to come back down to more normal ranges by the middle to the second half of next year,” Gopinath told Yahoo Finance, although she noted that the price pressures are high.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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