The International Monetary Fund (IMF) explained that the world economy is in a weaker position than expected due to three main factors: The emergence of the omikron 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 pointing out 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 1.2pp downward revision for this year’s growth, which puts it at 4.0%: It eliminated the approval of the Build Back Better from its projection; incorporate the impact that an earlier-than-expected reduction in 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 has already been mentioned for China, they highlighted that the scenario for Brazil has weakened, where high levels of inflation have led the central bank to react aggressively through monetary policy, which has affected domestic demand. A similar dynamic is observed in Mexico, albeit to a lesser extent, to which is added a lower estimated growth in the United States that will affect our country’s external demand.
Similarly, a more restrictive monetary policy in the United States worldwide will generate tighter financial conditions, putting pressure on emerging market currencies. At the same time, higher interest rates worldwide will make borrowing more expensive, putting pressure on government finances.
Finally, with regard to the risks to its prospects, the IMF highlighted five questions: What will happen to the pandemic? How will a less accommodative monetary policy in the United States affect global financial conditions? When will distortions in supply chains decrease?
Will stricter conditions in the labor market lead to higher wages and higher inflationary pressures? Will problems spread in China’s real estate sector?
We agree with the difficult scenario the IMF proposes 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 already has 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 can not avoid the risks of a more persistent do not ignore effect. or the emergence of new variants. On the other hand, our scenario for inflation in the United States is one of sustained pressure during the first half of the year and only moderate decline during the second half.
With this, our growth estimate for the world economy for this 2022 is 4.3%, still close to the 4.7% of 2021. In the meantime, the rate hike cycle in the United States will be the key and, following the falconry tone of the last FOMC meeting, it seems increasingly likely that the central bank will be more aggressive in increases than expected. In this sense, we can not rule out that it translates into an even more complex scenario. Finally, we believe that the risks of financial instability have increased in various regions of the world due to 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.
Reference-www.eleconomista.com.mx