IMF revises 2022 global growth outlook to 3.8%

• …as output in world’s superpowers wanes

From its previous forecast of 2022 global growth outlook of 4.9 per cent in October 2021, the International Monetary Fund (IMF), in its world economic outlook update titled, “Rising Caseloads, a Disrupted Recovery and Higher Inflation,” has projected global output to rise by 4.4 per cent.

This is a sharp weakness from the estimated 5.9 per cent growth in the world’s output in 2021. 

The Bretton Woods institution claimed that adverse developments since its October 2021 forecast mean that the world entered 2022 in a weaker position than it previously anticipated. 

Precisely, Kristalina Georgieva, the IMF managing director and her team said the downward revision to the global growth outlook reflected markdowns in output growth expectations from the two largest economies in the world, the United States of America and China, which face varied headwinds. 

The IMF said it expected the United States to grow barely 4.0 per cent this year, following its removal of the baseline assumption that the Build Back Better fiscal policy package would bolster economic activities and enhance consolidation of the strong 5.6 per cent gross domestic product rebound recorded in 2021. 

In addition, Kristalina’s team believes signals of earlier-than-anticipated withdrawal of monetary accommodation and continued supply shortages justify its downward revision of the October 2021 forecast when it predicted the largest economy in the world would grow at 5.2 per cent this year. 

China, which defied global recession in 2020 with 2.3 per cent expansion in its economy and a strong 8.1 per cent growth in 2021, is now expected to cool-off in 2022, as the IMF said the second-largest economy in the world would barely grow 4.8 per cent this year, contrary to hitherto October projection of China growing at 5.6 per cent. 

Unlike the United States where monetary policy authority has indicated possible interest rate hikes, the People’s Bank of China is signalling support, and indeed reduced lending rate in December 2021 as one of its measures to support productivity and ease supply constraint. However, pandemic-induced disruptions related to the zero-tolerance COVID-19 policy and protracted financial stress among property developers continue to constrain economic growth in China, thus reinforcing the Bretton Wood institution’s pessimism on the growth prospect of the Chinese economy.  

Beyond the emergence of new COVID-19 variants, which could prolong the pandemic and induce renewed economic disruptions, The IMF noted supply chain disruptions, energy price volatility, and localised wage pressures may exacerbate uncertainties around inflation and policy responses from both monetary and fiscal authorities. 

While Kristalina and her team see more headwinds and downside risks to economic growth in advanced markets, the IMF is concerned about the potential vulnerabilities of emerging markets in the form of capital and trade flows, which may have implications for the already weak fiscal positions of most African countries. 

Notably, any disruption to global commodity prices and demand may have a significant impact on African economies and the ability of the government to fund budgets, including Nigeria, especially as most African countries’ debt levels and service ratios have increased significantly in the past two years. 

Likewise, such global risk pass-through may disrupt foreign currency markets in developing economies, including Nigeria, where the naira remains volatile and dollar scarcity continues to undermine investor confidence in the real sector. 

The IMF reinforced its pessimistic outlook, noting global risks may also crystallise from the sporadic geopolitical tensions as well as climate emergencies, which raise the probability of major natural disasters in some developed countries. 

Excitingly, the IMF maintains its outlook on Nigeria, forecasting the economy to grow 2.7 per cent in 2022 after it estimated that the country’s GDP grew 3.0 per cent in 2021, a sharp recovery from the 1.8 per cent COVID-19 induced decline recorded in 2020.  

Albeit with Kristalina’s team cutting the GDP growth projection of South Africa to 1.9 per cent, the continent is now forecast to record 3.7 per cent economic expansion, a slowdown from the 4.0 per cent resurgence seen in 2021. 

The Monetary Policy Committee, at its meeting held on January 24 and 25, 2022, noted Nigeria’s relative immunity to the global macro headwinds, it would be sacrosanct for both monetary and fiscal authorities to continue to actively monitor development and appropriately respond with effective policies to sustain economic recovery, which many economists designate as “still fragile.” 

More so, the 2.7 per cent GDP growth forecast of the IMF is below the estimated 2.8 per cent population growth, thus reinforcing the continuous decline in per capita output and explaining the steady fall of more Nigerians into the poverty trap.