The International Monetary Fund (IMF) explained that the global economy is in a weaker position than anticipated due to three main factors: The emergence of the omicron variant; stronger and more persistent inflationary pressures, especially in the United States; and the situation of the real estate sector and consumption in China. While he highlighted that a less favorable scenario for the United States and the reduction of the monetary stimulus in the world will lead to lower growth. In the case of the United States, the institution explained that there are three main catalysts behind its downward revision of 1.2pp for this year’s growth, placing it at 4.0%: It eliminated the approval of the Build Back Better from its projection; incorporates the impact that an earlier-than-anticipated reduction of monetary stimulus would have; and expect supply chain disruptions to continue.
In this context, he expects emerging markets to face a complex scenario, lowering his growth estimate for these economies from 5.1% to 4.8%. In addition to what was already mentioned for China, they highlighted that the scenario has weakened for Brazil, where high levels of inflation have led the central bank to respond aggressively through monetary policy, impacting domestic demand. A similar dynamic is being observed in Mexico, although to a lesser extent, to which is added a lower estimated growth in the United States that will affect our country’s external demand.
Likewise, a more restrictive monetary policy in the United States will generate tighter financial conditions globally, inducing pressures on emerging market currencies. At the same time, higher interest rates worldwide will make loans more expensive, putting pressure on public finances.
Finally, as regards the risks to its prospects, the IMF highlighted five questions: What will happen with the pandemic? How will a less accommodative monetary policy in the United States affect global financial conditions? When will distortions in supply chains subside?
Will tighter conditions in the labor market lead to higher wages and higher inflationary pressures? Will problems in China’s real estate sector spread?
We agree with the difficult scenario proposed by the IMF for both growth and global inflation, but we believe that the impact of the factors that will affect them, especially growth, will be greater. On the one hand, the omicron variant is already having a clear impact on activity, and although there are some signs of stability in infections and restrictions on mobility have begun to be removed in some regions, we cannot ignore the risks of a more persistent effect or the emergence of new variants. On the other hand, our scenario for inflation in the United States is one of persistent pressure during the first half of the year and only moderate decline throughout the second half.
With this, our growth estimate for the global economy for this 2022 is 4.3%, still close to the 4.7% of 2021. Meanwhile, the rate hike cycle in the United States will be key and, after the hawkish tone of the last FOMC meeting, it looks increasingly likely that the central bank will be more aggressive in hikes than anticipated. In this sense, we cannot rule out that this translates into an even more complex scenario. Finally, we believe that the risks of financial instability have been increasing in various regions of the world as a result of the strong increase in global liquidity levels, an increase in debt levels and other imbalances.
*The author is director of International Economic Analysis at Grupo Financiero Banorte.
