IMF raises global economic forecast but warns of patchy recovery and daunting challenges


The International Monetary Fund raised its global economic forecast for the second time this year following faster vaccination campaigns against Covid-19 and fiscal and monetary support provided by governments and central banks, but it put in guard policymakers against wider income gaps and uneven recovery as richer countries recover from the pandemic faster.

The global economy is now expected to grow 6% this year, down from a previous forecast of 5.5%, the Washington lender said in its latest update to its Global economic outlook Tuesday.

The revision comes after a 3.3% contraction last year as Covid-19 disrupted trade, hampered travel and caused lockdowns around the world as unemployment and poverty rose.

Next year’s growth is projected at 4.4 percent, down from a previous estimate of 4.2 percent.

The fund releases its growth forecasts every three months and holds its spring meetings this week alongside the World Bank. Prospects for growth depend on the success of vaccination programs and the effectiveness with which economic policies can limit lasting damage from the world’s deepest recession since the Great Depression, the fund said.

While medium-term losses to the global economy were expected to be lower than in the aftermath of the 2008 crisis, “the damage pattern in all countries is likely to be different this time around,” the economist said. Chief of the IMF, Gita Gopinath. .

Poor countries and emerging markets are expected to suffer more hardships, compared to a decade earlier, when advanced economies were hit hard by the global financial crisis, Ms. Gopinath said.

“These discrepancies, however, do not only occur between countries, but also within them,” she said.

According to the fund, income inequality within countries is expected to increase as young workers and those with relatively lower skills will be hit hardest not only in advanced markets, but also in emerging and developing countries. .

The fund said 150 economies are unlikely to return to pre-pandemic levels this year, with the figure falling to 110 countries next year.

Women’s employment rates remain lower than men’s and continue to exacerbate disparities, Ms. Gopinath said.

Employment has declined in sectors with a greater concentration of younger or less skilled workers and in sectors that are more vulnerable to automation. Many of the jobs lost amid the pandemic are unlikely to return due to accelerated digitization and automation, she said.

Countries’ divergent recovery trajectories are poised to create larger gaps in living standards from pre-pandemic expectations.

The average annual loss of gross domestic product per capita from 2020 to 2024 is expected to be 5.7% in poor countries and 4.7% in emerging markets, while losses in advanced economies are expected to be less than 2, 3%.

The losses offset gains made in poverty reduction efforts, Ms. Gopinath said. Last year, 95 million more people were considered extremely poor, compared to projections before the pandemic.

On Monday, the fund provided $ 238 million in debt service relief to 28 poor countries through October 15.

The global growth revision is largely underpinned by advanced economies’ growth of around 5.1% this year, down from a previous forecast of 4.3%, after contracting 4.7% last year.

The United States, the world’s largest economy, is set to benefit from the Biden administration’s $ 1.9 trillion stimulus package which has been compared to former President Franklin D. Roosevelt’s New Deal economic program, which has helped the country emerge from the Great Depression.

In the United States, growth is now projected at 6.4% this year after contracting 3.5% last year.

European growth will be more moderate as the countries of the continent face vaccine distribution problems.

Several European countries had to shut down amid the looming second and third waves of Covid-19 infections.

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Germany, Europe’s largest economy and the world’s fourth largest, is now expected to grow 3.6% this year.

The French economy is expected to rebound 5.8% while Italy, which was hit hard by the pandemic and recorded the second highest number of coronavirus deaths last April, will rebound by a modest 4.2% .

China will experience growth of 8.4% this year. The world’s second-largest economy introduced strict movement restrictions to contain the pandemic and was able to reopen its economy and grow 2.3% last year. Japan, the world’s third-largest economy, is expected to grow 3.3% after contracting to a similar degree last year.

India, which has the third highest infection rate in the world after the United States and Brazil, is expected to grow 12.5% ​​after contracting 8% last year.

The UK, the world’s sixth largest economy, is expected to grow 5.3% after contracting 9.9% last year.

The economies of the MENA region are expected to experience an average growth of 4% this year after contracting by 3.4%.

Saudi Arabia, the largest economy in the Arab world, is expected to grow 2.9% after contracting around 4.1%. The UAE economy is expected to grow 3.1%. Egypt, the third largest economy in the Arab world, is expected to grow by 2.5%.

Global trade is expected to improve after rebounding in the second half of last year due to pent-up demand for durable consumer goods from advanced economies such as cars and the resumption of supply chains in emerging markets, the fund said.

Trade is now expected to rise 8.4% this year and 6.5% next year after declining 8.5% in 2020, the fund estimates.

Inflation in advanced economies is expected to remain below central bank targets of 1.6% this year and on average 4.9% in emerging market and developing economies.

The fund has raised its projections for oil prices. He now expects the price of oil to be around $ 58.52 per barrel this year and $ 54.83 per barrel next year. The average price of oil was $ 41.29 per barrel last year.

Much still depends on the race between virus and vaccines

Ms Gopinath reiterated her warnings in January about the lingering uncertainty about global growth and the pace of recovery.

“A lot still depends on the race between the virus and the vaccines. Greater progress with vaccinations may elevate predictions, while new viral variants that elude vaccines may lead to severe degradation, ”she said.

“The wide divergences in the speeds of recovery also raise the prospect of divergent political positions.”

The IMF said “last year’s severe collapse could have been at least three times as large without the rapid political support globally.”

Globally, governments provided $ 16 billion in budget support last year, backed by $ 9 billion in monetary accommodations from central banks.

The slowdown of the past year has increased the debt of emerging and developing countries and limited their ability to cope with increasing levels of poverty and inequality.

Looking ahead, Ms Gopinath said that “to avoid divergent results, it will be necessary first of all to solve the health crisis everywhere”.

“Economic policies will need to limit the lingering damage, secure the recovery and prepare for the post-Covid world, while keeping in mind the available political space,” she said.

Given country limits and higher debt levels, policies must be “better targeted to maintain the ability to support economic activity during this uncertain time as the race between virus and vaccines unfolds”, Ms. Gopinath said.

“A tailor-made approach will be necessary, with policies well calibrated according to the stage of the pandemic, the strength of the economic recovery and the social and economic circumstances of each country,” she said.

“Once the health crisis is over, policy efforts can focus more on building resilient, inclusive and greener economies, both to strengthen the recovery and to increase potential output. “


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