The International Monetary Fund (IMF) cut its economic growth forecast for 2022 to 4.4 percent, according to its Economic Outlook forecast released on Tuesday.
According to the new report, factors such as the highly infectious COVID-19 omicron variant, supply chain disruptions, rising energy prices and inflation are all behind the agency’s downgraded outlook for this year.
In the U.S., continued supply chain disruptions coupled with the low likelihood of the Build Back Better Act passing in Congress lowered the IMF’s projection for the U.S. by 1.2 percentage points.
“The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide and therapies become more effective,” the IMF wrote in its report.
Along with this downgrade, the IMF forecasted that inflation will persist for longer than previously predicted, saying it will likely begin to go down as supply chain issues resolve and monetary policies respond in major economies.
The IMF’s newly-appointed First Deputy Managing Director, Gita Gopinath, told reporters on Tuesday that the bulk of the downgraded forecast had to with uncertainty in the U.S. and China.
“The IMF’s latest world economic outlook, therefore, anticipates that while Omicron will weigh on activity in the first quarter of this year, this effect will fade starting in the second quarter,” she said.
“Other challenges and policy pivots are expected to have a greater impact on the outlook. We project global growth this year at four-point four percent, which is 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China.”
Gopinath also cited ongoing tensions between NATO and Russia over the military buildup along the Ukrainian border as another factor affecting global growth.
“Of course, we are hoping, like all of the international community, is that there can be a peaceful resolution to this issue,” she said.