The global economic recovery will be slower than originally forecast this year, says the International Monetary Fund. In its quarterly update released on Tuesday, the IMF said that its projected global growth for 2022 is 4.4%, down from initial predictions of 5.1%, and it will drop even further to 3.8% next year.

What's causing the slowdown?

In the short term, the Omicron variant has been a cause of concern, but because it is less severe than previous variants, its economic impact is expected to lessen from the second quarter of 2022 onwards, said IMF First Acting Managing Director Gita Gopinath. Instead, the weak recovery and political risks in China and the US are expected to have a greater impact, and in fact the downgraded projection is attributed mainly to the issues faced by these two major economies.

In the case of the US, the IMF identifies the main challenge to be political obstacles to the proposed risk reduction 'Building Back Better' economic strategy; in the case of China, the continued recession in the real estate sector that has been ongoing since the government started cracking down on the industry in an attempt to tackle income inequality.

Inflation to be problematic going forward

Even as economic growth is expected to decline, the IMF has revised its inflation projections upwards - something that consumers and businesses are already feeling, as prices rise across all industries. Much of this is due to energy and food prices going up, combined with the ongoing supply chain problems that started with pandemic restrictions two years ago.

The IMF has also flagged out large discrepancies in economic output between developed and developing economies, warning that even as the more advanced economies - which tend to have larger reserves and more sophisticated means of controlling inflation and managing supply chains - recover to pre-pandemic levels, many emerging markets and developing economies are at risk of continuing massive job losses and growing poverty.

'Vital to break the hold of the pandemic'

The IMF currently estimates that the pandemic will cost the global economy $13.8 trillion by 2024. To address the risks of more deadly COVID variants emerging, the Fund said that a global effort is needed to 'ensure widespread vaccination, testing, and access to therapeutics, including the newly developed antiviral medications', and recommended that governments prioritise the healthcare sector in their spending and fiscal policies.

"Many of the challenges that the world is facing is because we still remain in the grip of the pandemic," Gita Gopinath said during the press conference following the report's release. The Omicron variant has dragged down the economic recovery of affected countries, she pointed out, and reducing the risks of more dangerous COVID variants emerging will be a costly affair. But just observing the level of disruption that Omicron has caused indicates, she added, that tackling the virus needs to be a priority. "We're not going to escape the pandemic durably without widespread vaccinations, testing, diagnostics, everywhere in the world."