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Omicron could slow economic growth, warns IMF chief

December 3, 2021

The warning comes as rising inflation and global supply chain disruptions hit economies worldwide, threatening the global economic recovery.

 IMF Managing Director Kristalina Georgieva speaks during a conference hosted by the Vatican on economic solidarity, at the Vatican
Georgieva called for debt restructuring and a reduction in tariffsImage: Reuters/R. Casilli

The new omicron variant of COVID-19 could slow the global economic recovery, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said on Friday at a Reuters event in Washington.

In its most recent World Economic Outlook, the IMF projected global growth of 5.9% this year and 4.9% next year. The United States and other major economies suffered major downward revisions after the appearance of the delta strain of COVID-19.

The emergence of omicron lead to a major crash in the global stock and oil markets in late November, reflecting investors' concerns over the effect new coronavirus restrictions could have on economic growth. These concerns are additionally fueled by uncertainty regarding the new variant's virulence and the possibility it could resist currently existing vaccines.

What are the causes of the change?

"Even before the arrival of this new variant, we were concerned that the recovery … is losing somewhat momentum," Georgieva said.

The IMF's recent forecasts raised concerns that global supply chain issues and uneven distribution of vaccines were slowing the recovery and that many countries were being left behind. A surge in demand in advanced economies along with shortages of key components has fueled a wave of price increases.

How will countries deal with inflation?

Georgieva said that to deal with inflation the US Federal Reserve will have to raise interest rates in 2022 rather than in 2023, as the IMF had previously predicted.

Georgieva encouraged the United States to implement tariff reductions as a "useful tool" to help contain inflation. She also called for more aggressive debt restructuring so that the current debt burden in developing countries doesn't become a major obstacle to global economic recovery.

"2022 is going to be a very pressing year in terms of dealing with debt," Georgieva said. Sovereign debt has risen 18% during the COVID pandemic, according to the IMF chief.

sdi/aw (AFP, Reuters)