Global economy to grow at 6% in 2021, says IMF

The IMF has announced an upgrade to global growth in its World Economic Outlook, projecting the global economy to grow at 6 percent in 2021, moderating to 4.4 percent in 2022.

This is a big turnaround from an estimated contraction of –3.3 percent in 2020 when the world was hit by COVID-19 pandemic.

In the report released on Tuesday, April 6 in Washington, DC, IMF chief economist, Gita Gopinath, said the new forecast reflects the additional fiscal support provided in the United States, vaccination efforts that are going to lead to a strengthening of recovery in the second half of this year, and also the continued resilience of economic activity to the pandemic in many parts of the world.

Gopinath stressed that a high degree of uncertainty surrounds the IMF’s projections as the pandemic is yet to be defeated and virus cases are accelerating in many countries.

That’s leading to diverging recoveries both across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliant on tourism do less well.

“The biggest risk right now is still the pandemic, if there are new virus variants that evade the vaccine, then that could lead to a sharp downgrade. But if, on the other hand, there’s faster roll out of vaccinations, then that could uplift the outlook,” said Gopinath.

She also added that multi-speed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways. This could cause inflated asset valuations to unwind in a disorderly manner, financial conditions to tighten sharply, and recovery prospects to deteriorate, especially for some highly leveraged emerging markets and developing economies.

“The second big risk is to financial conditions. We see multispeed recoveries and we have seen interest rates go up. If interest rates go up even further in a more disorderly fashion than that could have negative implications for several countries, especially for some highly vulnerable emerging and developing economies,” said Gopinath

Policy makers will need to continue supporting their economies while dealing with more limited policy space and higher debt levels than prior to the pandemic, Gopinath added. This requires better targeted measures to leave space for prolonged support if needed.

She also urged central banks to keep access to money easy in the current environment.

“Monetary policy should also remain accommodative while proactively addressing financial risks that we do see using macro prudential tools,” said Gopinath.