IMF World Economic Outlook predicts 6 percent global growth

The International Monetary Fund warned Tuesday that the gap between rich and poor countries was widening during the pandemic, with low vaccination rates in emerging economies leading to a skewed global recovery.

The IMF maintained its 2021 global growth forecast of 6 percent in its last World Economic Outlook report, largely because advanced economies, including the United States, expect slightly faster growth than the global body had previously forecast. Economic growth in developing countries is expected to be slower, and the global agency said the spread of more contagious variants of the virus posed a threat to the recovery. It called on countries to work together to accelerate the protection of their citizens.

“Multilateral action is needed to ensure rapid, global access to vaccines, diagnostics and therapies,” Gita Gopinath, the IMF’s chief economist, wrote in the report. “This would save countless lives, prevent new variants and add trillions of dollars to global economic growth.”

The IMF predicted that the US economy will grow by 7 percent in 2021 euro area was projected to expand 4.6 percent and Japan 2.8 percent. Rapid expansion was expected for China at 8.1 percent and India at 9.5 percent, but their outlook has been revised downwards since April. The outlook in China was lowered due to a slowdown in government investment, while India was lowered due to a severe second wave of the virus that slowed the recovery.

Global expansion in 2022 is set to be stronger than previously forecast, with growth of 4.9 percent. That too will be led by advanced economies, the IMF predicted.

More than a year after the coronavirus emerged, economic fortunes are closely tied to how successful governments have been in providing fiscal support and obtaining and deploying vaccines. The IMF said about 40 percent of the population in advanced economies is fully vaccinated, while that figure is only 11 percent or less in emerging markets and low-income emerging economies. Different levels of financial support from governments also amplify the divergence in economic fortunes.

The IMF’s board of directors announced this month that it had approved an issuance plan Reserve funds worth $650 billion that countries could use to buy vaccines, fund health care and pay off debt. When finalized in August, as expected, the funds should provide additional support to countries lagging behind in tackling the health crisis.

Concerns about price increases made headlines in the United States and elsewhere, but the IMF said it continued to believe the recent wave of inflation was “transient.” The organization noted that unemployment rates remained below their prepandemic levels and long-term inflation expectations remained “well anchored.” Ms Gopinath said predicting the path of inflation was subject to much uncertainty due to the unique nature of the economic shock the world had faced.

“More ongoing supply disruptions and soaring house prices are some of the factors that could lead to continued high inflation,” said Ms Gopinath.

As the Federal Reserve prepared for Tuesday and Wednesday, it advised central banks to be agile in setting monetary policy and urged them not to raise interest rates too quickly.

“Central banks must avoid tightening policies prematurely when faced with temporary inflationary pressures, but must be prepared to act quickly if inflation expectations show signs of easing,” Ms Gopinath added.

At a press conference on Tuesday, IMF officials said they had observed how inventory shortages were depressing manufacturing activity and damaging sectors such as the auto industry.

While the IMF expects inflation in the United States to remain high this year and normalize next year, it is looking for signs that rising prices could “de-anchor” the Fed’s 2% target. That will become apparent as medium-term inflation expectations begin to rise and as higher prices become trapped in wages and business contracts. Officials are also looking at whether the recent sharp rise in house prices continues to lead to higher rents, which would improve the inflation outlook.

Mutations of the virus remain the biggest challenge facing the global economy. The IMF predicted that highly contagious variants, if they emerged, could derail the recovery and wipe out $4.5 trillion in gross domestic product by 2025.

The center of gravity of that pain would most likely be felt in the poorest parts of the world, hardest hit by the first waves of the pandemic.

“It was already diverging, and it has worsened over this period,” Ms Gopinath said of global inequality. “It’s a reflection of some very large fault lines that are growing.”

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