IMF Warns of Rising Risks to Global Economy

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In its bi-annual published World Economic Outlooks released this week, the Washington-based international financial institution projects a 5.9% global growth for 2021, and 4.9% in 2022.

That’s 0.1% lower for 2021 than in the July forecast due to the growing risks of supply chain disruptions, and the worsening of the pandemic. (See Insiders’ Hot Stocks on TipRanks)

“This is partially offset by stronger near-term prospects among some commodity-exporting emerging market and developing economies,” says the report. “Rapid spread of Delta and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome. Policy choices have become more difficult, with limited room to maneuver.”

The report refers to the dilemma policymakers — like central banks — face between rising inflation and economic slow-down, which has raised fears of the return of an old villain, stagflation.

These fears are more evident in the U.S., where supply chain disruptions are combined with labor shortages due to tighter immigration, declining labor force participation among women, and the early and generous government benefits that favor nonmarket over market activities.

Last Friday, for instance, the U.S. Bureau of Labor Statistics reported that the U.S. economy created just 194,000 new jobs in September, the lowest number of jobs created this year, and well below the 500,000 jobs markets expected.

That’s terrible news for U.S. economic growth, as more deficient job creation means lower income growth, lower consumer spending, and eventually lower GDP growth.

Meanwhile, U.S. government agencies and private organizations have reported substantial price gain numbers. Year-ahead, inflation expectations increased 5.3% in September 2021, in line with market forecasts. That’s the 11th month in a row. Moreover, the September report helped push the three-year average future inflation to 4.2% from 4%.

Inflation expectations are something economists and the Federal Reserve follow closely to determine whether inflation is transitory or permanent. Diminishing inflationary expectations is usually a sign that inflationary pressures are ebbing. While increasing inflationary expectations is a sign that inflationary pressures are picking up.

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