International Monetary Fund raises growth forecasts for rich countries and weakens prospects for the developing world

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WASHINGTON (Reuters) – The International Monetary Fund on Tuesday maintained its forecast for global growth of 6% for 2021 and raised its forecast for the United States and other rich economies, but lowered its estimates for developing countries suffering from high rates of coronavirus infection.

In an update to its World Economic Outlook, the International Monetary Fund said the divergence largely depends on improved access to COVID-19 vaccines and continued financial support in advanced economies, while emerging markets face difficulties on both fronts.

“Nearly 40 percent of the population in advanced economies has been fully vaccinated, compared to 11 percent in emerging market economies, and a tiny percentage in low-income developing countries,” Gita Gopinath, chief economist at the International Monetary Fund, said during a press conference. “. .

“Faster-than-expected vaccination rates and a return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades,” she said.

The International Monetary Fund has significantly raised its forecast for the United States, which now expects to grow by 7.0% in 2021 and 4.9% in 2022 — 0.6 and 1.4 percentage points higher, respectively, than its April forecast. Projections assume that the US Congress will approve nearly $4 trillion from President Joe Biden in proposed infrastructure, education, and family support largely as envisioned by the White House. Read more

Positive fallout from US spending plans, along with expected progress in coronavirus vaccination rates, bolsters the International Monetary Fund’s 2022 global growth forecast to 4.9%, up 0.5 percentage points from April.

The fund made its biggest upgrade to Britain, raising its 2021 growth by 1.7 percentage points to 7.0%, reflecting a better adjustment to COVID-19 restrictions than previously expected. Read more. The eurozone saw a smaller 0.2 percentage point upgrade for 2021, while Japan saw a 0.5 percentage point drop, reflecting a higher number of infections and tighter restrictions in the first half of the year.

India, which has suffered with 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 International Monetary Fund also cut its 2021 forecast for China by 0.3 percentage point, citing a cut in public investment. and general financial support.

The IMF also projected a lower outlook for Indonesia, Malaysia, the Philippines, Thailand and Vietnam as recent waves of COVID-19 infections affect activity. The fund forecast that emerging Asia will grow 7.5% this year, down 1.1 percentage points from its April forecast. Read more

Low-income countries saw a 0.4 percentage point drop in their growth in 2021, with the fund citing slow vaccine rollouts as the main factor holding back their recovery.

The logo of the International Monetary Fund appears outside its headquarters during the Spring Meetings of the International Monetary Fund and the World Bank in Washington, United States, April 20, 2018. REUTERS/Yuri GRIPAS/FILE PHOTO

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blowing clock

Gopinath said the IMF views inflation pressures as temporary due to a “supply and demand mismatch” as economies reopen, with high inflation readings this year, particularly in the United States, returning to normal levels next year.

But she said that if long-term supply bottlenecks prove to be the case, they could cause inflation expectations to not be restrained next year, which would be a concern.

“While we’re seeing wages rise in some sectors, we don’t see it as a widespread phenomenon and inflation expectations are flat,” she said. “However, we still haven’t gotten out of the woods yet.”

The fund said that if the Fed reassessed its inflation outlook and took precautionary measures to tighten monetary policy, this would add a “double whammy” to emerging markets, adding capital outflows and higher borrowing costs to growth challenges.

Viruses, spending risks

The International Monetary Fund said that other downside risks remain significant globally, including the possibility of the emergence of new highly contagious coronavirus variants leading to new restrictions on movement and reduced economic activity.

In one scenario affecting both emerging markets and developed countries with a high frequency of vaccines, the fund said it could cut 0.8 percentage points off global GDP growth this year and in 2022 — leading to a loss of global production of about $4.5 trillion by 2020. 2025.

The International Monetary Fund said the other big downside risk is the prospect of curtailing US social spending and infrastructure plans, 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 has left its policy prescriptions for countries largely unchanged: prioritizing health spending, especially on vaccination, supporting vulnerable households and businesses, investing in education, training and productivity-enhancing projects, and accelerating the transition to a low-carbon economy.

(Reporting by David Lauder Editing by Paul Simao

Our Standards: Thomson Reuters Trust Principles.

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