THE INTERNATIONAL Monetary Fund (IMF) on Tuesday slashed its global growth forecast for 2022, noting that new variants of the coronavirus disease 2019 (COVID-19) may prolong the pandemic.

“The global economy enters 2022 in a weaker position than previously expected,” the multilateral lender said in its World Economic Outlook Update released on Tuesday, citing the impact of the Omicron variant that has rapidly spread around the world.

The IMF now expects the world economy to grow by 4.4% this year, lower than the 4.9% estimate it gave in October. It estimated the global economy expanded by 5.9% in 2021.

“The baseline incorporates anticipated effects of mobility restrictions, border closures, and health impacts from the spread of the Omicron variant. These vary by country depending on susceptibility of the population, the severity of mobility restrictions, the expected impact of infections on labor supply, and the importance of contact-intensive sectors. These impediments are expected to weigh on growth in the first quarter of 2022,” the IMF said.

It also cited supply chain disruptions, elevated inflation, China’s property woes, and weaker-than-expected recovery in private consumption as other factors weighing on the outlook.

The IMF said inflation will remain elevated in the near-term — on average, 3.9% in advanced economies and 5.9% in emerging markets and developing economies this year.

The global growth forecast also assumes that severe illness, hospitalizations, and deaths due to COVID-19 will drop to “low levels” in most countries by end-2022.

“But low current vaccination rates in many countries risk further new variants. The longer and more widely the COVID-19 virus circulates, the greater the likelihood of new mutations that evade vaccines, turn back the clock on the pandemic, and fuel social discontent if recurrent mobility restrictions are needed to slow transmission,” the IMF said.

Meanwhile, the IMF also downgraded the growth forecast for the ASEAN-5 (Association of Southeast Asian Nations) which include Indonesia, Malaysia, the Philippines, Thailand, and Vietnam to 5.6% this year, from the 5.8% previously given. The region’s growth projection was kept at 6% for 2023.

The IMF did not release updated Philippine gross domestic product (GDP) growth forecast for 2022. In October, it lowered the Philippine growth outlook to 6.3%, from 7% previously. This is below the 7-9% target set by the government.

“As advanced economies lift policy rates, risks to financial stability and emerging market and developing economies’ capital flows, currencies, and fiscal positions — especially with debt levels having increased significantly in the past two years — may emerge,” the IMF said. 

Investors now expect the US Federal Reserve to hike interest rates three times this year, starting as early as March, according to a Reuters poll last week.

For 2023, the IMF raised its global economic forecast by 0.2 percentage points to 3.8%, saying this is “mostly mechanical.”

“Eventually, the shocks dragging 2022 growth will dissipate and — as a result —global output in 2023 will grow a little faster. The upward revision to 2023 global growth is, however, not enough to make up ground lost due to the downgrade to 2022. Cumulative global growth over 2022 and 2023 is projected to be 0.3 percentage point lower than previously forecast,” it said. — L.W.T.Noble