IMF lifts 2021 global GDP growth to 6%

The International Monetary Fund (IMF) also warned that economic recoveries are diverging dangerously across and within countries.

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IMF lifts 2021 global GDP growth to 6% despite COVID-19 www.financialstand.com

The global economy is likely to expand this year at the fastest pace in at least four decades as vaccine rollouts accelerate and advanced economies spend aggressively to counter the Covid-19 pandemic and related lockdowns, the International Monetary Fund said.

The IMF expects the world economy to grow 6% this year, the most since 1980, when it started tracking data on a comparable set of countries. That is an upgrade from a projection for 5.5% growth the IMF made in January. The pandemic cut global output by an estimated 3.3% in 2020, the worst peacetime outcome since the Great Depression.

The U.S. and China, the world’s biggest economies, are driving the recovery. The U.S. economy is projected to expand 6.4% this year and regain its pre-pandemic size after an estimated contraction of 3.5% last year. The IMF earlier projected 5.1% growth in 2021. China’s economy is projected to expand 8.4% this year, up from an earlier forecast of 8.1%.

Washington has pledged to spend roughly $5 trillion since last spring to battle the Covid-19 pandemic and its economic fallout, including the $1.9 trillion packages approved in March. The Federal Reserve has slashed short-term interest rates almost to zero while buying trillions of dollars in securities. Other advanced economies, including the European Union, Japan, and the U.K., have pursued similar strategies.

“At $1.9 trillion, the Biden administration’s new fiscal package is expected to deliver a strong boost to growth in the United States in 2021 and provide sizable positive spillovers to trading partners,” the report said.

Despite problems with vaccine rollouts in Europe and localized surges in Covid-19 cases caused by variants of the disease, the IMF raised its forecasts for other major economies, particularly Canada, the U.K., and Italy.

The recovery will be less robust in many emerging-market and developing economies hit hard by slumps in tourism and commodity exports and often lacking the financial resources needed to cushion their economies, the IMF said.

“Multispeed recoveries are underway in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic-policy support, and structural factors such as reliance on tourism,” said Gita Gopinath, the IMF’s chief economist, in the latest edition of its semiannual World Economic Outlook.

In sub-Saharan Africa, GDP is expected to expand 3.4% this year, an improvement from the forecast of 3.2% in January. Output in Latin America and the Caribbean is projected to expand 4.6%, up from 4.1%. As a whole, emerging and developing economies are expected to grow 6.7%, up from a 6.3% forecast in January.

Amid the diverging economic fortunes, Ms. Gopinath cautions the U.S. and other wealthy nations against tightening monetary policy prematurely. Higher interest rates in advanced economies could increase borrowing costs and debt burdens for countries that rely on overseas financing while drawing away investment capital.

“Major central banks should provide clear guidance on future actions with ample time to prepare to avoid taper-tantrum kinds of episodes,’’ Ms. Gopinath said, referring to 2013 when the Fed’s unexpected suggestion that it might tighten policy sent Treasury yields soaring. Advanced-economy rate increases that are orderly and reflect stronger growth expectations need not pose difficulties for other countries, she said.

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