According to the International Monetary Fund, the global economic recovery from the COVID-19 pandemic is weakening, and risks are increasing.
On October 12, the IMF cut its 2021 growth forecast for the U.S. by one full percentage point to 6%. Remarkably, it is the biggest reduction by any G7 economy in its latest World Economic Outlook.
The IMF announced that the cut indicates disruptions to supply chains and softening consumption in Q3 of 2021.
The revision came days after Goldman Sachs lowered its growth forecasts for the U.S. economy this year and next. The bank cited weaker consumer spending and the winding down of the government’s COVID-19 relief programs.
The IMF now anticipates the global economy to expand 5.9% in 2021, 0.1% points lower than the July forecast. Meanwhile, the outlook for 2022 remained intact. According to the organization, economic risks have risen.
The rapid spread of the delta variant of COVID-19 and the threat of new variants had raised uncertainty about the recovery from the pandemic.
IMF also cut its 2021 growth forecasts for China, Japan and Germany
The organization also lowered its 2021 growth forecasts for Japan, China, and Germany. It announced that shortages of materials were reducing manufacturing output in Germany. Meanwhile, in Japan, emergency COVID-19 measures implemented between July and September had dented the recovery.
The IMF added that China’s economy would likely rise 8% in 2021, less than the July forecast.
Other risks to the growth outlook include a failure to raise the U.S. debt ceiling. Remarkably, it could have serious implications for financial markets.
Furthermore, disruptions to various sectors such as hospitality and retail have led the labour market recovery significantly to lag the rebound in economic growth in most countries. According to IMF, lower levels of employment are expected to persist.
Meanwhile, output in advanced economies will likely return to levels projected before the COVID-19 pandemic hit by 2022. Additionally, output in developing economies is anticipated to stay 5.5% below pre-pandemic forecasts in 2024.