Stronger global economic recovery seen one year into pandemic, but future still daunting, says IMF

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The International Monetary Fund (IMF) projected a stronger recovery for the global economy in its latest World Economic Outlook, but said the future was still daunting as the world still faces extreme social and economic strain one year into the Covid-19 pandemic.

“We are now projecting a stronger recovery for the global economy compared with our January forecast, with growth projected to be 6 percent in 2021 (0.5 percentage point upgrade) and 4.4 percent in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3 percent in 2020, Gita Gopinath, Economic Counsellor and Director of the Research Department at the IMF, wrote in her blog.

It is one year into the COVID-19 pandemic and the global community still confronts extreme social and economic strain as the human toll rises and millions remain unemployed, she said, adding that a way out of this health and economic crisis was increasingly visible even with high uncertainty about the path of the pandemic.

“Thanks to the ingenuity of the scientific community hundreds of millions of people are being vaccinated and this is expected to power recoveries in many countries later this year,” she said.

According to Gopinath, economies also continue to adapt to new ways of working despite reduced mobility, leading to a stronger than anticipated rebound across regions. Additional fiscal support in large economies, particularly the United States, has further improved the outlook. 

Daunting challenges

She also warned of the ” daunting challenges” ahead.

“The pandemic is yet to be defeated and virus cases are accelerating in many countries. Recoveries are also diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliant on tourism do less well,” she wrote.

According to the IMF, the upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.

This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.

Other advanced economies, including the euro area, will also rebound this year but at a slower pace, Gopinath said, adding that among emerging markets and developing economies, China was projected to grow this year at 8.4 percent.

The IMF projected India’s economy to grow by a whopping 12.5 percent in 2021 after shrinking by 8 percent in 2020. It forecast growth in 2022 at 6.9 percent.

Gopinath said divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.

“The average annual loss in per capita GDP over 2020-24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” she wrote.

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 compared with pre-pandemic projections, Gopinath added.

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