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The economic recovery from the COVID-19 pandemic, even in places where infections look under control, will not be assured until the pandemic is “beaten back” around the world, the International Monetary Fund said Tuesday, in its latest update to the global outlook.
Economists at the IMF said they have detected a troubling trend. Rich countries are growing faster while emerging and developing economies, especially poorer Asian countries, are slumping.
Only global economies working in tandem can reverse this trend.
“Concerted, well-directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries or one where divergences intensify, the poor get poorer, and social unrest and geopolitical tensions grow,” said Gita Gopinath, the IMF’s chief economist, in a blog post accompanying the new forecast.
As for global GDP, the divergent trends between rich and poor nations effectively cancel each other out and the IMF’s forecast for global growth for 2021 remains unrevised at 6%.
The agency projects global growth of 4.9% for 2022, up from the previous forecast of 4.4%.
But the risks remain to the downside.
The most worrisome outcome for the developing world would be a more acute spread of Covid-19 in their countries and an inflation scare in the advanced economies that would tighten financial conditions.
| Area | 2021 growth projection | Difference from April forecast | 2022 growth projection | Difference from April | |
| World output | 6% | — | 4.9% | +0.5% | |
| U.S. | 5.6% | +0.5% | 4.9% | +1.4% | |
| Euro-Area | 4.6% | +0.2% | 4.3% | +0.5% | |
| Japan | 2.8% | -0.5% | 3% | +0.5% | |
| U.K. | 7% | +1.7% | 4.8% | -0.3% | |
| Canada | 6.3% | +1.3% | 4.5% | -0.2% | |
| China | 8.1% | -0.3% | 5.7% | +0.1% | |
| India | 9.5% | -3% | 8.5% | +1.6% | |
| Brazil | 5.3% | +1.6% | 1.9% | -0.7% | |
| Russia | 4.4% | +0.6% | 3.1% | -0.7% |
U.S. view bumped up
The IMF was upbeat about U.S. growth, revising its forecast for 2022 to 4.9%, up 1.4 percentage points from the prior forecast in April. That’s much more optimistic than economists at Goldman Sachs, who see U.S. growth tumbling to 2% in the second half of next year.
The IMF and World Bank are pushing for countries to provide $50 billion to step up vaccination rates. Global experts have been demanding more sharing of vaccine doses equally. Dr. Tedros Adhanom, the director general of the World Health Organization, has said the world has squandered vaccines.
The IMF is also moving forward with a plan to provide $650 billion of assistance to help countries facing downturns.
According to the latest forecast, commodity prices
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are expected to increase at a significantly faster pace than assumed in April.
While some economists think savings that had accumulated during the pandemic will fuel growth going forward, the IMF staff’s research found much of the savings came from places with a low pre-pandemic savings rate.
‘Price pressures contained for the most part’
The IMF was sanguine about the surprising spike in core inflation in the U.S. this year.
“In most cases, inflation should subside to its pre-pandemic ranges in 2022 once the transitory disturbances work their way through prices,” the IMF said.
Labor market slack remains substantial, inflation expectations are well anchored and structural factors like automation will continue to pull prices lower.
Still, the IMF said, inflation in the U.S. would be 4% this year and only slowing to 3.3% in 2022.
Central banks like the Fed should “generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying growth dynamics,” the IMF said.
“Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions,” the IMF said.
