IMF Boosts Global Growth Prospects As Vaccines Outweigh Uncertainty

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IMF Boosts Global Growth Prospects As Vaccines Outweigh Uncertainty

(Bloomberg) – The International Monetary Fund has raised its forecast for global growth this year, betting that the rollout of coronavirus vaccines and more fiscal stimulus will offset the immediate challenge posed by the resurgence of the pandemic.

Global gross domestic product will soar 5.5% this year, faster than the 5.2% projected in October, the fund said on Tuesday. He attributed the improvement to the United States for much of the upgrade, which was offset by cuts to its forecasts for the eurozone and the United Kingdom.

Such an expansion would match 2007 as the best in four decades of data and follow a revised upward 3.5% contraction last year, still the worst peacetime decline since the Great Depression. . The IMF forecast a global expansion of 4.2% for 2022.

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of politicians to provide effective support until that happens,” he wrote. IMF chief economist Gita Gopinath in a blog post accompanying the World Economic Perspective.

The fund sees major central banks maintain their key rate settings until 2022, with financial conditions remaining at current levels for advanced economies and improving for emerging and developing countries.

The United States has seen one of the biggest improvements after approving a $ 900 billion relief plan. President Joe Biden is also asking for $ 1.9 trillion in additional aid. The IMF predicts that the world‘s largest economy could grow 5.1% this year, down from 3.1% in October.

Japan, which announced its own over $ 700 billion stimulus, also saw a big upward revision. The fund now forecasts economic growth in 2021 of 3.1% compared to 2.3% previously.

These optimistic prospects contrast with Europe, where a deluge of cases has resulted in further restrictions. The eurozone’s growth forecast has been slashed by a full percentage point, to 4.2%, in hopes that the cooling at the end of last year will continue. The UK was reduced by almost a point and a half to 4.5%.

Read more: Alternative data shows growth stumbles over fear of viruses

Overall, advanced economies will experience production losses compared to pre-pandemic projections which are relatively lower than elsewhere thanks to fiscal and monetary policy support and earlier and widespread access to vaccines.

Projections assume wide availability of vaccines in advanced economies and some emerging markets this year and in most countries by the second half of next year. They also incorporate potential new lockdowns before the inoculation is widespread, and this social distancing continues until the pandemic is tamed.

Learn more: Why a slow vaccination can delay the world‘s recovery

Yet forecasters face many unknowns. They understand how restrictions to reduce infection affect the economy before widespread inoculation, how vaccine deployment expectations and political support influence activity, and changes in financial conditions. and commodity prices.

For world trade, the IMF sees import and export volumes increase by 8.1% this year, slightly less than the 8.3% increase seen in October, after an estimated drop of 9.6% l last year.

The IMF will follow the release of the economic forecast this week with an updated global financial stability report on Wednesday and an update to its budget monitor on Thursday.

Other strong points:

  • China’s growth estimate for 2021 dropped from 8.2% to 8.1%, India’s increased to 11.5% from 8.8%
  • Canada’s projection for this year has been reduced from 5.2% to 3.6%
  • The United States and Japan will return to their activity levels at the end of 2019 in the second half of this year, while the euro area and the United Kingdom will remain below these levels until 2022.
  • The global economy lost $ 22 trillion in production between 2020 and 2025 from levels projected before the pandemic
  • More than 150 economies are expected to have lower per capita income levels in 2021 than in 2019 and around 110 economies in 2022
  • Nearly 90 million people are at risk of falling into extreme poverty by the end of the year
  • Social unrest amid heightened inequality or unequal access to vaccines could further complicate recovery
  • World leaders should work closely to accelerate immunization in countries with low health care capacity and ease the debt of low-income and developing countries whose burden is unsustainable

© 2021 Bloomberg L.P.

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