Omicron ‘creating obstacle course for global economy’

The Omicron variant of Covid-19 is creating an obstacle course for the global economy, which will slow growth this year, notably in the world’s two largest economies, the IMF said.

The Washington-based crisis lender cut its world GDP forecast for 2022 to 4.4 percent, half a point lower than the October estimate, due to the “impediments” caused by the latest outbreak, although those are expected to begin to fade in the second quarter of the year.

“The global economy enters 2022 in a weaker position than previously expected,” the International Monetary Fund said in the quarterly update to its World Economic Outlook (WEO), adding that “the emergence of the Omicron variant in late November threatens to set back this tentative path to recovery.”

The outlook remains beset by risks, including geopolitical tensions and a wave of price increases hitting consumers and businesses that is expected to last longer than previously expected.

After the solid recovery last year when the global economy grew an estimated 5.9 percent, the IMF cut projections for nearly every country — with India a notable exception — but it was the downgrades to the US and China that had the biggest impact.

“These impediments are expected to weigh on growth in the first quarter of 2022,” the report said.

“The negative impact is expected to fade starting in the second quarter, assuming that the global surge in Omicron infections abates and the virus does not mutate into new variants that require further mobility restrictions.”

The fund once again stressed that controlling the pandemic is critical to the economic outlook and urged widespread vaccinations in developing nations, which have fallen short even as advanced economies have moved to deploying booster shots among their already highly-vaccinated populations.

“Bold and effective international cooperation should ensure that this is the year the world escapes the grip of the pandemic,” said Gita Gopinath, the fund’s newly-installed first deputy managing director.

She said the cumulative economic losses inflicted by the pandemic over the five years through 2024 are expected to total nearly $14 trillion, compared to the pre-pandemic forecasts.

The biggest drag on the global outlook is the sharp slowing in the United States and China, including factors beyond the impact of the virus.

With US President Joe Biden’s massive social spending plan stalled in Congress, the IMF subtracted the expected growth impact the program would have had on the economy.

Together with the supply chain snarls that have beset American businesses and manufacturing, these factors slashed 1.2 percentage points off GDP, which is now expected to expand four percent this year, the IMF said.

While that is a historically high rate for the world’s largest economy, it is far slower than the 5.6 percent expansion in 2021.

Meanwhile, China’s “zero-tolerance Covid-19 policy” has contributed to a slowdown in the Asian power, and the fund cut 0.8 points off expected growth for this year to 4.8 percent, the report said.

“China’s downgrade reflects continued retrenchment of the real estate sector and weaker than expected recovery in private consumption,” Gopinath said.

In an interview with AFP, Gopinath said it might be time for Beijing to “recalibrate” its strict stance, which “has an effect on economic activity, especially private consumption.”