Challenges looming as the global economy recovers from a pandemic: IMF

According to the International Monetary Fund (IMF), the emergence of a new coronavirus omicron variant has made the world economy a worse-than-expected start in the new year of 2022.

As the pandemic approaches the beginning of its third year, the IMF said in an October update to its global economic outlook that inflation would be higher and more widespread than expected due to rising energy prices and supply turmoil.

“In the last two years, this crisis and ongoing recovery have been reaffirmed to be unique,” said Gitagopinato, the IMF’s first Deputy Managing Director and former Chief Economist. “Policymakers need to carefully monitor the wide range of incoming economic data and be prepared to communicate with sudden notifications to implement policy changes in case of contingency.”

The IMF has weakened expectations for global economic growth, reducing its forecast from 5.9% in 2021 to 4.4% in 2022. This is 0.5 percentage points below what the organization predicted in October 2021.

The organization believes that new variants of COVID-19 may emerge, expanding the pandemic and causing new economic turmoil, potentially negatively risking the global outlook. ..

Inflation outlook also faces uncertainties such as supply chain disruptions, energy price volatility, and wage pressure from local workers.

Harbor in Long Beach, California.
On November 22, 2021, the vessel is shown offshore at the port of Long Beach, as supply chain issues continue from Long Beach, California. (Mike Break / Reuters)

“Monetary policy is at an important time in most countries,” Gopinath said. “The economy needs to adapt to the global environment with higher interest rates.”

She said the government should cancel special monetary policy support if inflation is widespread in parallel with a strong recovery, or if there is a risk of high inflation taking root.

“Some central banks have begun to raise interest rates ahead of price pressure,” Gopinas said.

Nonetheless, she said core inflationary pressures remained subdued and the government could exercise accommodative monetary policy if recovery was underway.

The IMF has released guidance on interest rates as Australia’s underlying inflation rate has reached its highest level since 2014 at 2.6%.

The country also recorded a higher-than-expected annual consumer price index of 3.5% in the December quarter, surpassing the Reserve Bank of Australia’s inflation target of 2-3%.

As a result, economists have formed expectations that reserve banks may begin to raise cash rates in 2022, which is currently at record lows of 0.1%. This is much faster than the central bank predicts.

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