The International Monetary Fund on Tuesday raised its forecast for global economic growth in 2021 and said the coronavirus-triggered downturn last year – the biggest peacetime contraction since the Great Depression – would be nearly a full percentage point less severe than expected.
The global lender said multiple vaccine approvals and the start of vaccinations in some countries had boosted hopes of an eventual end to the pandemic that has now infected nearly 100 million people and claimed the lives of more than 2.1 million globally.
But it warned that the world economy continued to face “exceptional uncertainty” and new waves of COVID-19 infections and variants posed risks, and global activity would remain well below pre-COVID-19 projections made one year ago.
IMF chief economist Gita Gopinath said U.S. President Joe Biden’s pledge to fund the World Health Organization’s COVAX vaccine initiative marked “a very big step” to containing the pandemic and ensuring more equitable distribution of vaccines.
“Much more will be needed, because as we can see, given the mutating virus, that this is not a problem that’s going away anytime soon,” Gopinath told a news conference.
“There is still a tremendous amount of uncertainty,” she said in a separate interview. “We know that the health crisis is not over until it’s over everywhere.”
Gopinath said the global economy could gain $9 trillion between 2020 and 2025 if faster progress could be made in ending the health crisis, and it was clearly in the interest of advanced economies to help poorer countries recover.
“There’s a complete economic sense to do this, and do it right now,” she said.
The IMF estimates that close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021, with the pandemic wiping some out $22 trillion in projected output through 2025 and reversing progress made in reducing poverty over the past two decades.
Gopinath said advanced economies were recovering more quickly, and urged countries with means to continue to offer poorer nations aid, low-interest loans and debt relief.
“There is still much, much to be done, but we’re certainly at least in positive growth territory this year, as opposed to last year,” she told the news conference.
In its latest World Economic Outlook, the IMF forecast a 2020 global contraction of 3.5%, an improvement of 0.9 percentage points from the 4.4% slump predicted in October, given stronger-than-expected momentum in the second half of last year.
It predicted global growth of 5.5% in 2021, 0.3 percentage points better than in October, citing expectations of a vaccine-powered uptick later in the year and added policy support in the United States, Japan and a few other large economies.
It said the U.S. economy, the largest in the world, was expected to grow by 5.1% in 2021, an upward revision of 2 percentage points attributed to carryover from strong momentum in the second half of 2020 and the benefit accruing from about $900 billion in additional fiscal support approved in December.
The outlook would likely improve further if the U.S. Congress passes a $1.9 trillion relief package proposed by Biden, Gopinath said, forecasting a 5% boost over three years if the package is approved by the U.S. Congress.
China’s economy is expected to expand by 8.1% in 2021 and 5.6% in 2022, compared with the October forecasts of 8.2% and 5.8%, respectively, while India’s economy is seen growing 11.5% in 2021, up 2.7 percentage points from the October forecast, after a stronger-than-expected recovery in 2020.
The Fund said countries should continue to support their economies until activity normalized to limit persistent damage from the deep recession of the past year.
Low-income countries would need continued support through grants, low-interest loans and debt relief, and some countries may require debt restructuring, the IMF said.