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IMF projects global economy to grow by 6% in 2021, highlighting widening divergence

The recovery remains uneven across regions, depending on access to vaccines

Washington, U.S. | Xinhua | The International Monetary Fund (IMF) on Tuesday maintained its global economic growth forecast at 6 percent for 2021, with economic prospects diverging further across countries since April’s forecast, according to the latest World Economic Outlook (WEO).

“The global economic recovery continues, but with a widening gap between advanced economies and many emerging market and developing economies,” IMF Chief Economist Gita Gopinath told a virtual press briefing.

“Our latest global growth forecast of 6 percent for 2021 is unchanged from the previous outlook, but the composition has changed,” she said.

In April, the IMF upgraded its 2021 global growth forecast to 6 percent from January’s forecast of 5.5 percent due to vaccination progress and additional fiscal support in large economies.

According to the latest projection, growth prospects for advanced economies this year have improved by 0.5 percentage points to reach 5.6 percent, while those for emerging market and developing economies this year are downgraded by 0.4 percentage points to 6.3 percent.

Close to 40 percent of the population in advanced economies has been fully vaccinated, compared with 11 percent in emerging market economies, and a tiny fraction in low-income developing countries, Gopinath noted.

“Faster-than-expected vaccination rates and 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.

In response to a question from Xinhua, Gopinath said the Delta variant is “an important concern,” noting that the variant has led to the downgrades in emerging Asia and rising number of cases in many parts of the world.

“I think even though we have incorporated some of it into our forecast, there is still an important downside risk, depending upon how this evolves in the future,” she said.

The IMF chief economist noted that among the things that need to be done “first and foremost” is to make sure a billion vaccine doses are made available from surplus nations to the countries that need them now.

“About half a billion has been announced in terms of vaccines being provided, but we still need to close that gap,” said Gopinath. “And also we need to make sure that the deliveries happen now as opposed to happen much later in the year or even into next year.

“This is probably the most urgent multilateral action that’s needed,” she said.

Gopinath also noted that divergences in policy support are a second source of the deepening divide, as advanced economies continued to roll out sizable fiscal support with 4.6 trillion U.S. dollars of announced pandemic-related measures available in 2021 and beyond.

On the other hand, in emerging market and developing economies, most measures expired in 2020, and they are looking to rebuild fiscal buffers, she said, adding that some emerging markets like Brazil, Hungary, Mexico, Russia and Turkey have also begun raising monetary policy rates to head off upward price pressures.

Noting that pent-up demand and supply chain bottlenecks are putting upward pressure on prices, the IMF, however, expects inflation to subside to pre-pandemic ranges in 2022 in most advanced economies.

This assessment is, however, subject to significant uncertainty given the uncharted nature of this recovery, Gopinath told reporters. “More persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation.”

Further, she noted, inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and currency depreciations – creating yet another divide.

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Xinhua

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