Slowdowns in the world's two biggest economies -- the United States and China -- are likely to be larger than expected this year, dragging down output on every continent and reducing global growth, a new report warned Tuesday.
Higher inflation, supply chain chokepoints, and covid-related shutdowns and worker shortages continue to afflict rich and poor nations, the International Monetary Fund wrote in its latest World Economic Report.
"The global economy enters 2022 in a weaker position than previously expected," the fund said in reducing its estimated global growth rate to 4.4% from the 4.9% it projected just three months ago.
The fund said the U.S. Federal Reserve's tighter monetary policy and the failure of the Biden administration's sweeping $2.2 trillion infrastructure and social policy package were among the reasons it reduced the U.S. growth forecast by 1.2 percentage points to 4%.
In China, which has powered much of the world's growth in recent years, the fund pointed to the collapse of the real estate sector and the zero-covid policy that has restricted travel, shut businesses and reduced consumption. The report reduced the country's growth forecast by 0.8 percentage points to 4.8%.
The fund emphasized that the forecast was subject to a high level of uncertainty -- about the course of covid, the prospects of climate-related natural disasters, supply-chain disruptions and rising political tensions, particularly around Ukraine. With the pandemic entering its third year, a note of pessimism underlay the report. "Risks overall are to the downside," Gita Gopinath, the first managing deputy director, said.
Global economic losses related to the pandemic will total $13.8 trillion by the end of 2024, Gopinath estimated.
The dimmed economic prospects come at a time when governments have less room to maneuver in how they spend their money. Debt levels have soared over the past two years as countries struggled with the health crisis caused by the pandemic and funneled aid to their citizens. Public spending is unlikely to reach the same levels in the future.
The slowdown in China, which is both a major supplier and buyer of goods traded with other countries, is also setting off reverberations around the world. The once-exuberant real estate market has plunged. The government has imposed the world's most stringent restrictions and lockdowns to contain covid, and unexpected power outages have further hindered industrial production.
Gopinath of the IMF emphasized that however difficult the recovery has been in wealthier nations, emerging economies have been hit the hardest, with weak growth and low vaccination rates.
With 70 million more people living in extreme poverty than before the pandemic, the fund called for more international cooperation to work out debt relief for struggling nations as well as more equitable distribution of covid vaccines, tests and treatments.