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IMF forecasts lower than expected global economic growth as U.S. and China stall

© Dominik Lückmann

WASHINGTON (WNI) — The world’s two biggest economies are weighing on global growth as the IMF’s latest forecast downgrades the recovery’s momentum.

According to the International Monetary Fund’s latest World Economic Outlook report, global growth is set to be lower than previously predicted as China and the U.S. struggle against multiple economic factors.

Downgrading its forecast by 0.5% to 4.4% in 2022, the IMF warned that “downside surprises” had become a factor in slowing global economic growth. The new emerging Omicron Covid variant as well as high inflation was leading to more market volatility.

For the U.S. economy, the impact of tightening fiscal policy from the Federal Reserve coupled with high inflation and continued supply chain disruption is expected to reduce economic growth by 1.2%.

China is also facing a myriad of problems including its heavily indebted real estate sector that has led to a slowdown in growth, predicted to be 4.8% this year and down 0.8% from previous forecasts.

The IMF noted that large economies including Germany were facing a “weaker-than expected recovery in private consumption” which has impacted global economic output. A potential conflict in Europe could also have further ramifications for market sentiment, with European stocks particularly exposed to volatility.

In their latest forecast, inflation is set to be revised upwards as advanced and emerging markets deal with elevated prices for longer than predicted. However, the report concluded that energy and food prices would begin to stabilise in the coming year as inflation subsides in 2023.

With COVID still having a major disruptive impact on the global economic recovery, the IMF predicted in the mid-term that most developed economies would experience a slowdown in growth through to next year.

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