The International Monetary Fund (IMF) will raise its forecast for global economic growth in 2021 and 2022, according to its Managing Director Kristalina Georgieva on Tuesday.
Georgieva said that in January, the IMF projected global growth at 5.5% in 2021, but now expects a further acceleration. This is partly driven by additional policy support, including the new fiscal package in the US, and partly because of the expected recovery, powered by the vaccine rollout for the novel coronavirus (COVID-19) in many advanced economies later this year.
“This allows for an upward revision to our global forecast for this year and for 2022, as you will see in our World Economic Outlook next week,” she said.
Georgieva mentioned that governments took exceptional measures to contain the economic impact of the COVID-19, including about $16trn in fiscal action and a massive liquidity injection by central banks.
She added, “Without these synchronised measures, the global contraction last year would have been at least three times worse [new IMF research].”
And yet, while the outlook has improved overall, Georgieva said that prospects are diverging dangerously, not only within nations, but also across countries and regions.
“In fact, what we see is a multi-speed recovery, increasingly powered by two engines, namely the US and China,” she said, “They are part of a small group of countries that will be well ahead of their pre-crisis GDP levels by the end of 2021, but they are the exception, not the rule.”
Georgieva mentioned that the cumulative loss in per capita income, relative to pre-crisis projections, will be 11% in advanced economies by next year.
For emerging and developing countries, excluding China, the loss will be much worse, at 20%, cutting one-fifth of what is already a much smaller per capita income than in richer countries.
This loss of income means millions of people will f ace destitution, homelessness, and hunger.
“One of the greatest dangers facing us is extremely high uncertainty. So much depends on the path of the pandemic—which is now shaped by uneven progress in vaccination and the new virus strains that are holding back growth prospects, especially in Europe and Latin America,” she said.
Georgieva added that the world currently faces another turning point. She explained that the good news is that the global economy is on firmer footing. Millions of people are benefiting from vaccines that hold the promise of a normal life, of embracing friends and loved ones.
She continued that there is danger as well. Economic fortunes are diverging. Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. Too many countries are falling behind.
“We must not let our guard down, as what we do now will shape the post-crisis world. So we must do the right thing,” she assured.
Georgieva said that there will be no sustainable recovery without giving people a fair shot. She briefed the strong policy action needed to give the people a fair shot in focusing on escaping the crisis, do whatever it takes to ramp up vaccine production, distribution, and deployment. There should also be continued support for vulnerable households and viable firms.
“Safeguard the recovery, as the pandemic recedes, scale back support programs, but scale up social spending and active labor market policies to promote a fairer transition,” she said, “Also invest in the future, especially in infrastructure and people’s education and health to ensure that everyone can benefit from the historic transformation to greener and smarter economies.”
In addition to further support to viable small- and medium-sized enterprises (SMEs), she explained, “SMEs are the world’s biggest employer, yet our new research shows that the share of insolvent SMEs could rise sharply this year as support is scaled back—threatening one in ten jobs in this vital sector.”
Georgieva noted that more support for vulnerable countries should be provided, in the context she mentioned that a new IMF research shows that low-income countries have to deploy some $200bn over five years just to fight the pandemic. This would be followed by another $250bn to return to the path of catching up to higher income levels.
