The International Monetary Fund (IMF) on Tuesday upgraded its global growth projections, forecasting a 6 percent rebound in the world economy in 2021 and 4.4 percent in 2022, while also warning that recoveries are at risk of diverging dangerously.
“The pandemic is yet to be defeated, and virus cases are accelerating in many countries,” IMF Chief Economist Gita Gopinath said at a virtual conference introducing the April 2021 World Economic Outlook.
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The IMF and World Bank kicked off their annual spring meetings on Tuesday.
The global economy contracted by 3.3 percent in 2020 after countries – rich, poor, big and small – implemented draconian restrictions and lockdowns to halt the spread of the deadly coronavirus.
Now, the IMF forecasts a better year for global economic growth mainly driven by a sizable recovery in the United States, where the IMF estimates the economy will grow 6.4 percent this year.
The eurozone is also seen rebounding this year albeit at a slower pace of 4.4 percent, while China’s economy is projected to grow by 8.4 percent.
But the risk of deep economic scarring remains high for economies with slower vaccine roll-outs, limited policy support and those reliant on tourism, Gopinath warned.
The average annual loss in per capita gross domestic product (GDP) over 2020 to 2024 is projected to be 5.7 percent in low-income countries, and 4.7 percent in emerging markets. The losses in advanced economies are expected to be smaller, at 2.3 percent.
“Such losses are reversing gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020,” Gopinath said.
Young, low-skilled workers and women remain more heavily affected by the pandemic’s economic wrath. And many of the jobs they and others lost are unlikely to return.
Still, the IMF said the worst has been avoided thanks to swift policy action worldwide including $16 trillion in fiscal support.
“Our estimates suggest last year’s severe collapse could have been three times worse, had it not been for said support,” Gopinath said, also adding that many uncertainties surround the upgraded forecast.
The rosier projections for 2021 hinge significantly on successful vaccine roll-outs in developed as well as developing countries. Low-income nations will also benefit from further extending the pause on debt repayments and new allocation of the IMF’s Special Drawing Rights (SDRs), which will offer low-income countries a much-needed liquidity boost without incurring more debt, Gopinath said.
Once governments get COVID-19 under control, they should focus on building inclusive economies by prioritising green infrastructure investment to help mitigate climate change and strengthening social assistance to arrest rising inequality, she said.
Financing these goals will be challenging for economies with limited fiscal space. Bridging the funding gap will require improving tax collection and eliminating wasteful expenses.
Highlighting the need to ensure adequate access to international liquidity, Gopinath urged central banks to provide clear guidance on future monetary policy actions to allow ample time to adjust to potential interest rate shifts and avoid “taper tantrums” in global markets.