Words by Billy Stack, Staff Writer
On January 22nd, the International Monetary Fund (IMF), published a quarterly review of its global growth forecasts for the next two financial years. The review focussed on the potential impact of the omicron variant of COVID-19 and inflation driven by rising energy prices on economic recovery from the pandemic.
The IMF now predicts a headline global growth figure of 4.4% for 2022, down from 5.9% in 2021, and its own previous prediction of 4.9% for the coming year, which had been published in the October 2021 iteration of this report. This is explained by the emergence of the omicron variant across much of Europe throughout the winter, and the tightening of restrictions this has entailed in the world’s richest countries, with the US economy predicted to grow by 4% in the coming year, down from 5.6% in 2021. Despite omicron, the IMF does believe the global recovery from the 2020 recession will continue into 2023, with projected growth rates for that year now set at 3.8%, up from 3.5% in the October report.
This optimistic change in long-term expectations suggest that the IMF also foresees a solution to the current spike in energy prices, which has seen the U.K. ‘s inflation rates hit their highest level since 1991. The continued reliance of many of the world’s superpowers on oil imported from the Organisation of Petroleum Exporting Countries (OPEC), and the cartel’s only significant market rival Russia, has allowed suppliers to raise prices without seeing a fall in revenue, meaning prices are likely to remain volatile until new suppliers of oil enter the market, or renewable sources of energy become more widespread. The IMF report advises governments to use expansionary fiscal policy in the face of this crisis, such as the winter fuel allowance that the U.K. government provides to those of state pension age each year.
The continued diplomatic tensions between Russia and the EU, over the Russian government’s attempts to influence Ukrainian politics however, may encourage firms such as Gazprom to maintain their current high prices.
As well as adjusting its global forecasts, the IMF report also made projections for individual countries and continents for the next two years. These showed that the U.K. economy is predicted to grow faster than that of any other G7 member, and of the euro area as a whole, albeit by only 0.2 percentage points. While in South America, growth is expected to fall to 2.4% in 2022, and be only marginally higher the following year. Both figures are lower than their equivalent for any other continent.
While economic growth, in the form of consistently rising levels of GDP, is often presented as desirable, it is important to note that high levels of consumption and especially of fossil fuel usage will likely have a negative environmental impact. In 2019 outspoken climate activist Greta Thunberg condemned the obsession with “eternal economic growth”, saying that she believes it has encouraged the pursuit of unsustainable methods of production. While environmental scientists have long been advocating for the expansion of the energy sector to be confined to the growth of renewable resources, meaning any future fall in growth rates may not necessarily have the negative global impact the IMF suggests it will.
