Friday, September 17, 2021

IMF Raises Growth Forecasts for Rich Nations, Dims Prospects for Developing World

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The International Monetary Fund logo is seen outside its headquarters during the IMF / World Bank spring meetings in Washington, USA, April 20, 2018. FILE PHOTO BY REUTERS

WASHINGTON – The International Monetary Fund on Tuesday maintained its 6% global growth forecast for 2021, improving its outlook for the United States and other wealthy economies, but cutting estimates for developing countries battling rising COVID infections. -19.

The divergence is largely based on better access to COVID-19 vaccines and continued fiscal support in advanced economies, while emerging markets face difficulties on both fronts, the IMF said in an update to its Economic Outlook. world.

“About 40 percent of the population in advanced economies has been fully vaccinated, compared to 11 percent in emerging market economies and a small fraction in low-income developing countries,” said Gita Gopinath, an economist. in chief of the IMF, during a press conference. .

“Faster-than-expected vaccination rates and a return to normal have led to improvements, while lack of access to vaccines and new waves of COVID-19 cases in some countries, especially India, have led to degradations, ”he said.

The IMF significantly raised its forecast for the United States, which now expects to grow 7.0% in 2021 and 4.9% in 2022, 0.6 and 1.4 percentage points, respectively, from the April forecast. The projections assume that the US Congress will approve the roughly $ 4 trillion in infrastructure, education, and family support spending proposed by President Joe Biden, largely as envisioned by the White House.

The positive side effects of the US spending plans, coupled with expected progress in vaccination rates against COVID-19, are driving the IMF’s global growth forecast for 2022 to 4.9%, 0.5 percentage points higher than in April.

The Fund gave Britain its biggest upgrade, raising its 2021 growth by 1.7 percentage points to 7.0%, reflecting better adaptation to COVID-19 restrictions than previously anticipated. a 0.5 percentage point cut, reflecting an increase in infections and tighter restrictions in the first half of the year.

India, which has battled a massive wave of coronavirus infections this year, saw the biggest cut in its growth forecast, three percentage points, to 9.5% for 2021. The IMF also lowered its 2021 forecast for China by 0.3 percentage points. , citing a reduction in public investment and general fiscal support.

The IMF also forecast lower outlooks for Indonesia, Malaysia, the Philippines, Thailand and Vietnam, where recent waves of COVID-19 infections are weighing on activity. The Fund forecast emerging Asian economies to grow 7.5% this year, 1.1 percentage points less than the April forecast.

Low-income countries saw a 0.4 percentage point drop in their 2021 growth, and the Fund cited slow implementation of vaccines as the main factor preventing their recovery.

Inflation watch

Gopinath said the IMF considers inflationary pressures to be transitory due to “mismatches between supply and demand” as economies reopen, with high inflation readings this year, especially in the United States, which will return to normal levels next year. .

But he said that if supply bottlenecks proved to be long-lasting, they could cause inflation expectations to unravel next year, which would be a concern.

“While we see wages rise in some sectors, we do not see it as a broad-based phenomenon and inflation expectations are anchored,” he said. “However, we are not out of the woods yet.”

If the Federal Reserve reassess its inflation outlook and takes preventive measures to tighten monetary policy, this would add a “double whammy” to emerging markets, adding capital outflows and higher borrowing costs to their growth challenges, the Fund said.

Viruses, spending risks

The IMF said other downside risks remain significant globally, including the potential for new highly contagious coronavirus variants leading to further movement restrictions and reduced economic activity.

In a scenario that affects both emerging markets and advanced countries with high vaccinations, the Fund said that 0.8 percentage points could be cut from global GDP growth this year and in 2022, resulting in a global production loss of about $ 4.5 trillion by 2025.

Another significant downside risk is the possibility that America’s infrastructure and social spending plans will be cut, the IMF said, amid deep divisions between Democrats and Republicans in Congress. The IMF estimated that the proposed spending would boost US growth by 0.3 percentage points in 2021 and 1.1 percentage points in 2022.

The Fund left its policy prescriptions for countries virtually unchanged: prioritizing spending on health, especially vaccines, supporting vulnerable households and businesses, and investing in education, training, and projects that boost productivity and accelerate the transition to a low economy. in carbon.

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