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Global growth cools and the rich-poor divide widens

As the global economy struggles to balance itself, the resurgence of the coronavirus and supply chain bottlenecks threaten to dampen the momentum of the global recovery, a closely watched report warned on Tuesday.

The overall growth rate will remain close to 6% this year, a historically high level after a recession, but the expansion reflects a large divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest report on World Economic Outlook.

Poverty, hunger and unmanageable debt around the world are all on the rise. Employment has fallen, especially for women, reversing many of the gains they have made in recent years.

Unequal access to vaccines and health care is at the heart of economic disparities. While booster shots are increasingly available in some richer countries, 96% of people in low-income countries are still not vaccinated.

“Recent developments have made it clear that we are all in the same boat and that the pandemic is nowhere over. until it’s over everywhere, ”IMF chief economist Gita Gopinath wrote in the report.

The outlook for the United States, Europe and other advanced economies has also darkened. Factories hampered by restrictions and pandemic-related bottlenecks at major ports around the world have caused crippling supply shortages. A lack of workers in many industries contributes to clogs. The US Department of Labor reported Tuesday that a record 4.3 million workers left their jobs in August – to take or look for new jobs, or to leave the workforce.

In the United States, weakening consumption and sharp declines in inventories have led the IMF to revise its growth projections downwards to 6% from the 7% estimated in July. In Germany, manufacturing output has taken a hit because key raw materials are hard to come by. And foreclosure measures over the summer have dampened growth in Japan.

Fear of rising inflation, even if it is likely to be temporary, is growing. Prices are rising for food, medicine and oil as well as cars and trucks. Inflation fears could also limit the ability of governments to stimulate the economy if the slowdown worsens. As it stands, the unusual injection of public support in the United States and Europe is drawing to a close.

“Overall, the risks to the economic outlook have increased and political compromises have become more complex,” Ms. Gopinath said. The IMF lowered its global growth forecast for 2021 to 5.9%, from 6% forecast in July. For 2022, the estimate is 4.9%.

The key to understanding the global economy is that recoveries in different countries are not in sync, said Gregory Daco, chief US economist at Oxford Economics. “Each economy suffers or benefits from its own idiosyncratic factors,” he said.

For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Daco said, raising material costs. raw materials that affect the production process.

The pandemic has highlighted how a country’s economic success or failure can reverberate around the world. Floods in Shanxi, China’s mining region, and monsoons in coal-producing Indian states are pushing energy prices up. A Covid outbreak in Ho Chi Minh City that is closing factories means shop owners in Hoboken will not have shoes and sweaters to sell.

The IMF has warned that if the coronavirus – or its variants – continues to spread across the world, it could reduce estimated global production by $ 5.3 trillion over the next five years.

Soaring global energy prices threaten to impose more difficulties as they hamper recovery. This week, oil prices hit a seven-year high in the United States. As winter approaches, Europeans fear heating costs will skyrocket when temperatures drop. In other places, shortages worsened, causing blackouts in some places that crippled transport, closed factories and threatened food supplies.

In China, electricity is rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have fallen to dangerously low levels.

And over the weekend, Lebanon’s six million people were without power for more than 24 hours after fuel shortages shut down the country’s power plants. The blackout is just the latest in a series of disasters there. Its economic and financial crisis is one of the worst in the world for 150 years.

Oil producers in the Middle East and elsewhere have been benefiting from rising prices of late. But many countries in the region and North Africa are still trying to resuscitate their economies hit by the pandemic. According to recently updated reports from the World Bank, 13 of the 16 countries in this region will have a lower standard of living this year than before the pandemic, in large part due to “underfunded, imbalanced health systems. and poorly prepared ”.

Other countries were so overburdened with debt even before the pandemic that governments were forced to limit health care spending to pay off foreign lenders.

In Latin America and the Caribbean, there are fears of a second decade of lost growth like that experienced after 2010. In South Africa, more than a third of the population is unemployed.

And in East Asia and the Pacific, a World Bank update warned that “Covid-19 threatens to create a combination of slow growth and growing inequality for the first time in this century.” Businesses in Indonesia, Mongolia, and the Philippines lost an average of 40 percent or more of their typical monthly sales. Thailand and many Pacific island economies are expected to produce less in 2023 than before the pandemic.

Overall, however, some developing economies are doing better than last year, in part because of rising prices for commodities like oil and the metals they produce. Growth projections edged up to 6.4% in 2021 from 6.3% estimated in July.

“The recovery has been incredibly uneven,” and it’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to the functioning of the global economy. “

The outlook is clouded by uncertainty. Erratic policy decisions – such as Congress’ delay in lifting the debt ceiling – can further delay recovery, the IMF has warned.

But the greatest risk is the emergence of a more infectious and deadly variant of the coronavirus.

The IMF’s Gopinath urged vaccine manufacturers to support the expansion of vaccine production in developing countries.

Earlier this year, the IMF approved $ 650 billion in emergency foreign exchange reserves that were distributed to countries around the world. In the latest report, he again called on rich countries to ensure that these funds are used for the benefit of the poor countries that have struggled the most with the fallout from the virus.

“We are seeing what I call tragic development reversals in many dimensions,” said David Malpass, President of the World Bank. “Progress in reducing extreme poverty has been delayed by several years – in some cases, by a decade. “

Ben Casselman contributed report.

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