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IMF paints grim global economic outlook as stagflation looms

IMF paints grim global economic outlook slow economic growth, 1970s -like stagflation and vaccine protectionism haunt large economies. Also, the IMF chief warns that as stagflation looms, central banks are forced to reduce their pandemic stimulus measures at a time when the recovery from Covid-19 remains incomplete.

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IMF paints grim global economic outlook as stagflation looms causing the history of1970s inflation crisis to return. IMF warns that weaker global growth, vaccine protectionism and the specter of 1970s-style inflation haunting large economies. As the International lending institution, the offshoot of Bretton Woods Institution, International Monetary Fund prepares for its annual gathering this week, the contrast with the spring could not be more stark.

IMF paints grim global economic outlook close to Great Depression

Back in April, at the Washington-based fund’s last virtual bash, there were steady and noticeable upscales in economic growth amid a sense of optimism for the road ahead, led by stronger-than-expected recoveries in the US, UK and other advanced economies. Vaccines would pave the way for the swift unlocking of pandemic restrictions, fueling a rapid recovery from the worst global recession since the 1930s Great Depression.

Since then, the sprint back to economic health has slowed the head of the IMF, Kristalina Georgieva, warned last week. “We are unable to walk forward properly – it is like walking with stones in our shoes!”

On Tuesday, the IMF is expected to issue a downbeat economic outlook for the rest of the year, as a summer of supply-chain bottlenecks and rising inflationary pressures risks worsening this autumn.

In July, the IMF predicted 6% GDP growth for the global economy in 2021, but Georgieva said last week that this would be scaled down in its updated World Economic Outlook report.

Read more: IMF approves reforms to help poor countries in economic recovery

Why IMF paints a grim global economic outlook?

One of the reasons why IMF paints a grim global economic outlook is vaccine inequality. The low-income nations are still not getting adequate access to Covid vaccines, in a development likely to cost the world economy at large if left unaddressed. “We need a bigger push,” Georgieva said last week, calling for a sharp increase in the delivery of doses to the developing world.

Taking place virtually for a second year running, the meetings come in the wake of swirling clouds of controversies surrounding IMF, following allegations that Georgieva artificially boosted China’s ranking in a flagship World Bank report on the best countries to do business with, in her previous job at the bank.

Georgieva met the IMF board last week in an attempt to rebut the accusations against her, issuing a statement to say she looked forward to resolving the matter.

The controversy is, however, unlikely to overshadow the storm clouds gathering for the world economy. Alongside the mainly virtual event, Rishi Sunak, is expected to jet into Washington to attend a gathering of G20 finance ministers to discuss an action plan for the deteriorating outlook. He will also head the G7 meeting, dubbed as the group of rich western nations to come up with a road map to deal with the weaker global outlook and the IMF’s support for developing nations are expected to dominate the agenda.

Rising inflation might cripple pandemic stimulus by central banks

Concern is mounting over the strength of the global economy, with expectations that rising inflation could force major central banks to reduce their pandemic stimulus measures at a time when the recovery from Covid-19 remains incomplete. Due to this, IMF paints grim economic outlook as stagflation is crippling the central banks capabilities to pump money to revive distraught economies.

With supply shortages set to persist well into next year as the coronavirus Delta variant prevents a return to relative normality, a period of stagflation – stagnant growth and high inflation, reminiscent of the 1970s – could be on the cards.

It’s all a long way from the IMF’s optimism of the spring. If the outlook were to deteriorate at anything like the pace of the past six months, could a renewed winter of discontent lie ahead?

Read more: IMF being urged to show leniency, Finance Minister

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