IMF Boosts Global Growth Forecast On Hopes Of Pandemic Turnaround

Global economy is set to expand at a faster rate this year than expected earlier as vaccination against the coronavirus could strengthen activity later this year, underpinned by further policy support, the International Monetary Fund said Tuesday.

In its latest World Economic Outlook report, the lender raised the global growth forecast for this year to 5.5 percent from 5.2 percent seen in October.
World economic growth is projected at 4.2 percent in 2022.

The IMF estimated 3.5 percent contraction in global growth in 2020, which was better than the 4.4 percent shrinkage seen in October. The revision reflects the stronger-than-expected momentum in the second half of 2020, the lender said.

“There remains tremendous uncertainty and prospects vary greatly across countries,” IMF Chief Economist Gita Gopinath said.

The latest forecast reflect expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies, the IMF said.

Further, access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis could led to significant variations in the strength of the recovery across countries, the report added.

“Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes,” Gopinath said.

“If downside risks were to materialize, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide.”

The IMF stressed the need for strong multilateral cooperation to bring the pandemic under control across the world.

The U.S. growth projection for this year was raised sharply to 5.1 percent from 3.1 percent. Growth is projected to slow to 2.5 percent next year.

Eurozone’s growth forecast for this year was lowered to 4.2 percent from 5.2 percent. The projections for the big four euro area economies were also revised down. The single currency economy is forecast to grow 3.6 percent in 2022.

For Japan, the growth outlook for this year was raised to 3.1 percent from 2.3 percent. Next year, growth is seen at 2.4 percent.

The forecast upgrade for both the U.S. and Japan were largely due the support from additional fiscal measures.

The downgrade for the euro area reflected an observed softening of activity toward the end of last year, which is anticipated to continue into early 2021 amid rising infections and renewed lockdowns.

The growth forecast for the UK for this year was cut to 4.5 percent from 5.9 percent. The pace of growth is seen improving to 5 percent next year. Activity is expected to remain below end-2019 levels into 2022, the report said.

China’s growth forecast for this year was slightly lowered to 8.1 percent from 8.2 percent. Effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery, the IMF said. Growth is seen slowing to 5.6 percent next year.

India is projected to log the strongest growth among the main economies. The economy is seen expanding 11.5 percent this year, which is a significant upgrade to the 8.8 percent growth predicted in October.

The upgrade reflects carryover from a stronger-than-expected recovery in 2020 after lockdowns were eased, the IMF said. Growth is seen slowing sharply to 6.8 percent in 2022.

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