According to the International Monetary Fund’s (IMF) World Economic Outlook report, the poor performance of the supply chain, the impact of the Omicron variant, and high inflation will be decisive factors that will dampen the growth of the global economy in 2022.
Global growth is expected to decrease from 5.9% in 2021 to 4.4% in 2022; that is, half a percentage point less than what was projected in the October edition of the World Economic Outlook (WEO report) for 2022.
The decline will be most pronounced in the US – which is expected to grow by 4%, (1.2 percentage points less than in the previous estimate) – the largest drop for any major country or major group of countries for which the IMF makes forecasts.
The IMF said that the huge federal economic stimulus was expected to lead to higher inflation, but that the persistent supply chain disruptions had pushed the inflation to its highest level in a generation. US inflation topped 7% in December, according to an earlier Labour Department report, the highest rate since 1982.
In fact, the IMF estimates that the damage is already considerable, with global supply chain disruptions set to shave 0.5 to 1 percentage point off global gross product growth in 2021, as well as adding 1 percentage point to basic inflation, which excludes food and energy prices.
Other countries also suffered significant reductions. The IMF cut its outlook for China by 0.8 percentage points to 4.8%. Meanwhile, the Eurozone growth fell by 0.4 percentage points, led by a 0.8 percentage point cut in Germany’s growth.
Further, global supply chains are approaching a tipping point right now that will help determine whether the global logistics crisis will soon subside or continue to impact inflation well into 2022 (or beyond) and dampen growth further. The IMF doesn’t have high expectations for a turnaround. The industry outlook is that supply disruptions will remain high until at least the middle of this year, and then gradually improve.
Port traffic shows that container congestion continues to disrupt the chain around the world. The number of vessels queuing to dock in the west coast of the US as an example, at the twin ports of Los Angeles and Long Beach, California, continued to stretch into Mexican waters, adding 111 vessels as of late January 23, (nearly double the number in July 2021).
Similarly, the Durban coastline of South Africa continues to play host to long lines of incoming shipping traffic, and where operators have increasingly been bypassing ports as waiting times are just too long. Waiting results in further cost surges having to accommodate additional diesel-use, crew salaries and food.
The South African growth forecasts have been shaved significantly through the 2022 and 2023 periods. Between 2021 and 2023 forecasts the IMF has cut growth expectation just shy of 70% down to 1.4%.
For further information and to access the full IMF 2022 Outlook reports, click here.