The global economy, ravaged by the Covid-19 pandemic, is projected to grow at 5.5 percent in 2021 and 4.2 percent in 2022, the International Monetary Fund (IMF) said on Tuesday, reflecting the expectations of a vaccine-powered strengthening of business activities later in the year and additional policy support in a few large economies.
IMF become more upbeat about the global economy observing the coronavirus vaccinations administered across the world. It is, however, worried about the risk new Covid variants pose to the post-pandemic recovery.
According to its latest World Economic Outlook, published on January 26, the institution has projected the global economic growth of 5.5 percent this year — a 0.3 percentage point increase from October’s forecasts. It sees the global Gross Domestic Product (GDP) expanding by 4.2 percent in 2022.
“In our latest World Economic Outlook forecast, we project global growth for 2021 at 5.5 per cent, 0.3 percentage point higher than our October forecast, moderating to 4.2 per cent in 2022,” Gita Gopinath, Chief Economist of the IMF said.
The global economy contracted by an estimated 3.5 per cent in 2020, amidst the unprecedented health crisis.
The 2021 forecast is revised up by 0.3 percentage point relative to the previous forecast (5.2 per cent) in October 2020, reflecting expectations of a vaccine-powered strengthening of business activities later in the year and additional policy support in a few large economies, the IMF said.
“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” Gopinath wrote in a blog post.
The world has seen surging numbers of Covid-19 infections and deaths over the past few months, as new variants of the coronavirus have spread rapidly. These have been described as more infectious and are potentially deadlier than the original strain.
Noting that there is a great deal of uncertainty around this forecast, Gopinath said that greater success with vaccinations and therapeutics and additional policy support could improve outcomes, but, slow vaccine rollout, virus mutations, and premature withdrawal of policy support could worsen the outcomes.
As a result, many countries have stepped up their social restrictions, which has inflicted further economic pain.
In fact, the IMF cut its GDP forecasts for the eurozone this year by 1 percentage point. The 19-member region, which has been severely hit by the pandemic, is now expected to grow by 4.2 percent this year.
Germany, France, Italy and Spain — the four largest economies in the eurozone — also saw their growth expectations cut for 2021.
Economic activity in the region slowed in the final quarter of 2020, and this is expected to continue into the first part of 2021. The IMF does not expect the euro area economy to return to end-of-2019 levels before the end of 2022.
On the other hand, the United States is set to grow more than expected this year, according to the IMF.
The Fund revised its GDP forecast upward by 2 percentage points on the back of strong momentum in the second part of 2020 and additional fiscal support. GDP is now seen at 5.1 percent this year.
The U.S. Congress approved almost $900 billion in a stimulus package in December, and President Joe Biden has suggested that more relief packages could come soon.
Looking at emerging markets, China is set to grow above 8 percent this year, the IMF said.
“China returned to its pre-pandemic projected level in the fourth quarter of 2020, ahead of all large economies. The United States is projected to surpass its pre-Covid levels this year, well ahead of the euro area,” Gopinath said.
The IMF reiterated that governments need to keep supporting their economies via fiscal stimulus to bolster economic recovery.
“Policy actions should ensure effective support until the recovery is firmly underway, with an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence,” Gopinath added.
However, there remains tremendous uncertainty and prospects vary greatly across countries.
