The world economy enters 2022 in a weaker position than expected and Spain is not going to be any different. The International Monetary Fund (IMF) once again lowers the economic forecasts for our country. If in its Autumn World Economic Outlook report (published last October) it pointed out that Spain would close 2021 with a GDP growth of 5.7% and lead the Spanish economy to a growth of 6.4% this year, now the multilateral organization reduces both magnitudes. For 2021, it forecasts that the GDP will grow 4.9% and lowers the thrust in 2022 to 5.8%.
Despite the reduction of the institution led by Kristalina Georgieva, Spain will be the country that grows the most this year among advanced economies, which add an average of 3.9%, well ahead of Germany (3.8%), France (3.5%), Italy (3.8%), the United States (4%), the United Kingdom (4.7%) or Japan (3.3%).
The cut in the growth of the world economy is widespread and the reasons are, according to IMF analysts, the “multiple challenges” that the world faces “when the pandemic enters its third year.” Although vaccination has lowered the mortality of the virus, the multilateral organization highlights that “the rapid spread of the omicron variant has caused new restrictions on mobility in many countries and a greater shortage of labor.”
In addition, it highlights other factors as obvious drags: “Supply disruptions continue to weigh on activity and are contributing to rising inflation, which is adding to pressures from strong demand and high food and energy prices. In addition, record debt and rising inflation limit the ability of many countries to weather new shocks.”
Despite this negative view, the IMF points out that although “omicron will weigh on activity in the first quarter of 2022”, this effect “will fade from the second quarter. Other challenges, and political pivots, are expected to have a greater impact on the outlook. We project global growth for this year of 4.4%, 0.5 percentage points less than previously forecast, mainly due to the slowdowns in the United States and China”.
In this sense, the Fund highlights the “downside surprises in the second half of 2021”, with “the continuation of supply interruptions in the fourth quarter of last year, hindering global manufacturing, especially in Europe and the United States. To the interruptions derived from the COVID outbreaks in China, “were joined by stoppages in industrial production due to power cuts, the decline in real estate investment and a faster-than-expected withdrawal of public investment.”
Another relevant aspect for the IMF is prices. The multilateral organization explains that inflation will continue “to be high in the short term, with an average of 3.9% in advanced economies and 5.9% in emerging and developing economies in 2022.”
However, they qualify that “the increase in inflation should disappear as supply chain interruptions decrease, monetary policy tightens and demand rebalances from the intensive consumption of goods towards services.”
“The rapid increase in fuel prices is also expected to moderate during 2022-23, which will help contain general inflation. Futures markets indicate that oil prices will increase by about 12% and natural gas about 58% in 2022 (both considerably lower than the increases recorded in 2021) before receding in 2023 as supply-demand imbalances narrow further, as does food.”
Due to the strong push of inflation, the Fund forecasts that “monetary conditions are going to tighten globally”. In this way, the IMF details that “in the United States with the pressures on prices and wages”, the Federal Reserve is going to accelerate its reduction in asset purchases and will raise rates in 2022 more than expected.
The European Central Bank, for its part, will end net purchases of assets under the Emergency Purchase Program in March 2022, although it will temporarily increase net purchases under its asset purchase program and “will maintain interest rates at current levels until adequate progress is made to stabilize inflation at its medium-term target.
In addition, the IMF adds other elements of risk such as geopolitical tensions, which includes Ukraine and East Asia, which “jeopardize energy distribution, international trade and political cooperation.” It also adds “social unrest, which had decreased at the beginning of the pandemic” and “is increasing again in some countries, in part due to high food and energy prices.” And he recalls that “many of the tariff increases introduced during 2018-19 are still in force, and cross-border technological frictions remain prominent. All these elements threaten additional obstacles on the road to recovery.”