People stand in front of an electronic stock board of a securities firm in Tokyo, November. 29, 2021. Asian stock markets fell further Monday after the omicron variant of the coronavirus was found in more countries and governments imposed travel controls. Photo: AFP

 The Omicron variant of COVID-19 is creating an obstacle course for the global economy, which will slow growth this year, notably in the world's two largest economies, the IMF said Tuesday.

The Washington-based crisis lender cut its world GDP forecast for 2022 to 4.4 percent, half a point lower than the October estimate, due to the "impediments" caused by the latest outbreak, although those are expected to begin to fade in the second quarter of the year.

"The global economy enters 2022 in a weaker position than previously expected," the International Monetary Fund said in the quarterly update to its World Economic Outlook (WEO), adding that "the emergence of the Omicron variant in late November threatens to set back this tentative path to recovery."

The outlook remains beset by risks, including geopolitical tensions and a wave of price increases hitting consumers and businesses that is expected to last longer than previously expected.

After the solid recovery last year when the global economy grew an estimated 5.9 percent, the IMF cut projections for nearly every country but it was the downgrades to the US and China that had the biggest impact.

"These impediments are expected to weigh on growth in the first quarter of 2022," the report said. 

"The negative impact is expected to fade starting in the second quarter, assuming that the global surge in Omicron infections abates and the virus does not mutate into new variants that require further mobility restrictions."

The fund once again stressed that controlling the pandemic is critical to the economic outlook and urged widespread vaccinations in developing nations, which have fallen short even as advanced economies have moved to deploying booster shots among their already highly-vaccinated populations.

"Bold and effective international cooperation should ensure that this is the year the world escapes the grip of the pandemic," Gita Gopinath, the fund's newly-installed first deputy managing director, told reporters. She said the cumulative economic losses inflicted by the pandemic over the five years through 2024 are expected to total nearly $14 trillion, compared to the pre-pandemic forecasts.

A key challenge facing the global economy is the surge in prices, especially energy and food. But even excluding those items, so-called core inflation in the US is still projected to finish 2022 around 3.4 percent, well above the Federal Reserve's two percent target, Gopinath said. Supply chain issues caused by the pandemic should begin to ease in the second half of the year, but "inflation, even though it's declining, it will be high," she said in the interview.

The phenomenon is expected to bring more aggressive action by key central banks like the US Federal Reserve, which will raise borrowing costs worldwide, hindering recovery efforts, particularly in indebted developing nations.

The WEO baseline assumes the Fed will hike the benchmark interest rate three times this year and three in 2023.

But Gopinath cautioned that "higher inflation surprises in the US could elicit aggressive monetary tightening by the Federal Reserve and sharply tightening global financial conditions."

Inflation is expected to average 3.9 percent in advanced economies and 5.9 percent in emerging market and developing economies in 2022, before subsiding in 2023.