IMF raises 2021 global economic outlook on vaccine roll out

The Washington-based lender called on governments to implement policies that strengthen the recovery and make it inclusive, resilient and green

The global economy will grow 5.5% in 2021 as countries roll out Covid-19 vaccines, according to the IMF. Reuters

The International Monetary Fund revised upward its growth estimate for the global economy this year as countries roll out Covid-19 vaccines and the world’s largest economies provide additional support that will strengthen economic activity in the latter part of the year.

The global economy is now set to grow 5.5 per cent this year, 0.3 per cent more than what the fund estimated in October, following a 3.5 per cent contraction in 2020 that paralysed the travel industry, disrupted trade, led to lockdowns across the world, and increased unemployment and poverty, the Washington-based lender said in its latest update to its World Economic Outlook. In 2022, growth is projected to fall to 4.2 per cent.

There is still a great deal of uncertainty and an uneven recovery around the world, depending on how individual countries are faring and the pace of inoculations, the fund said. Last year’s downturn was the worst since the Great Depression with over 150 economies expected to have per-capita incomes below their 2019 levels in 2021. In 2022, the number of countries that see a rebound in their per-capita falls to about 110 economies.

"At $22 trillion, the projected cumulative output loss over 2020-2025 relative to the pre-pandemic projected levels remains substantial," the IMF’s chief economist Gita Gopinath, said.

Despite the rollout of various vaccines "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. There remains tremendous uncertainty and prospects vary greatly across countries," Ms Gopinath added.

"There is a great deal of uncertainty around this forecast," she said.

"Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes. If downside risks were to materialise, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide."

On Tuesday, Fitch Ratings said nearly 60 per cent of global bank rating outlooks are still negative and that may persist well into 2021.

Advanced economies are set to expand 4.3 per cent this after shrinking 4.9 per cent in 2020.

The US, the world’s largest economy, which also has the most Covid-19 related deaths at over 431,000, is set to accelerate 5.1 per cent in 2021 after contracting 3.4 per cent last year.

Growth in Germany, Europe’s largest and the world’s fourth-biggest economy, is now expected to increase 3.5 per cent this year, following an estimated 5.4 per cent contraction in 2020. France's economy is expected to rebound with a 5.5 per cent expansion after a deep 9 per cent contraction.

Italy, which was hard hit by the pandemic and had the second-highest number of coronavirus deaths last April, will rebound a modest 3 per cent after a 9.2 per cent contraction.

Spain, which has the tenth-highest number of coronavirus deaths globally, is also expected to grow 5.9 per cent after shrinking 11.1 per cent in 2020.

Growth in China, the world’s second-biggest economy, which implemented strict movement restrictions to contain the pandemic and was able to reopen its economy and grow 2.3 per cent last year, will expand 8.1 per cent this year.

Japan, the world’s third-largest economy, which implemented a state of emergency recently in the wake of a surge of Covid-19 infections, is projected to grow 3.1 per cent after shrinking an estimated 5.1 per cent in 2020.

India, which has the second-highest rate of infections in the world after the US and the third highest number of deaths, will grow 11.5 per cent after contracting 8 per cent last year.

The UK, the world’s sixth-largest economy, which left the EU and is now implementing a strict lockdown after the emergence of a highly infectious Covid-19 variant, is projected to grow 4.5 per cent following a 10 per cent contraction.

In Latin America, where coronavirus infections have surged, the two largest economies, Brazil and Mexico, are projected to register modest recoveries.

Brazil, which has the third highest amount of infections and second most deaths from the pandemic, will grow 3.6 per cent following a 4.5 per cent contraction, while Mexico will expand 4.3 per cent after shrinking 8.5 per cent.

Middle East and Central Asia economies are projected to grow an average 3 per cent this year after shrinking 3.2 per cent.

Saudi Arabia, the Arab world’s largest economy, is set to grow 2.6 per cent after shrinking an estimated 3.9 per cent.

Nigeria, Africa’s largest economy and biggest oil producer, is projected to grow 1.5 per cent after shrinking 3.2 per cent. South Africa, the second-largest and most diversified economy on the continent, is forecast to expand 2.8 per cent after contracting 7.5 per cent.

Global trade volumes, which contracted 9.6 per cent last year, are forecast to grow about 8 per cent in 2021 and then moderate to 6 per cent in 2022, according to the fund’s estimates. Inflation during 2021–22 in advanced economies is projected to remain generally below central bank targets at 1.5 per cent, while emerging market and developing economies inflation is forecast to be just over 4 per cent, lower than the historical average of the group.

Oil prices are expected to rise in 2021 just over 20 per cent from the low base for 2020, but will still remain well below their average for 2019, according to the fund. The average price of oil was $41.29 a barrel in 2020, it said. The assumed price, based on futures markets (as of January 4, 2021), is $50.03 in 2021 and $48.82 in 2022.

The fund reiterated its call for strong multilateral cooperation to combat the pandemic. It called for more funding and wider access to vaccines for all countries. The fund emphasised support to low-income developing countries that saw their debt levels soar as a result of the pandemic and said eligible states should work with creditors to restructure their debt under the Common Framework agreed by the G20.

Governments policies require "an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence," the fund said. "A green investment push coupled with initially moderate but steadily rising carbon prices would yield needed emissions reductions while supporting the recovery from the pandemic recession."

Ms Gopinath said the new virus strains are "a reminder that the pandemic is not over until it is over everywhere."

She said the fund estimates faster progress on ending the health crisis, will raise global income cumulatively by $9tn over 2020-25, benefitting all countries.