Mon | Sep 20, 2021

IMF forecasts 6% global growth, stronger rebound for Latam economies

Published:Wednesday | July 28, 2021 | 12:05 AM
International Monetary Fund  Managing Director Kristalina Georgieva.
International Monetary Fund Managing Director Kristalina Georgieva.

The International Monetary Fund, IMF, is sharply upgrading its economic outlook this year for the world’s wealthy countries, especially the United States, as COVID-19 vaccinations help sustain solid rebounds from the pandemic recession.

But the 190-country lending agency has downgraded its forecast for poorer countries, most of which are struggling to vaccinate.

The IMF on Tuesday boosted its forecast for gross domestic product, or GDP, in Latin America and the Caribbean, fuelled by stronger outlooks for its two largest economies.

The IMF expects the region will grow 5.8 per cent this year, up 1.2 percentage points from a forecast released in April. The region contracted 7.0 per cent last year, marking the worst performance of any region in the world.

“The forecast upgrade ... results mostly from upward revisions in Brazil and Mexico, reflecting better-than-expected first-quarter out-turns, favourable spillovers to Mexico from the improved outlook for the United States, and booming terms of trade in Brazil,” the IMF wrote in its report.

The multilateral raised its forecasts for Brazil by 1.6 per cent to 5.3 per cent, and for Mexico by 1.3 per cent to 6.3 per cent. It didn’t publish figures for other nations in the region.

The updated perspective for Brazil is in line with the median outlook from economists surveyed by the nation’s central bank, who have increased their projections for 14 straight weeks.

Overall, the IMF said Tuesday that it expects the global economy to expand 6.0 per cent this year – a dramatic bounceback from the 3.2 per cent contraction in the pandemic year of 2020. The forecast, unchanged from its previous estimate in April, would mark the fastest calendar-year global growth in records dating to 1980.

Beneath the worldwide number, however, a gap between the vaccine haves and have-nots is widening. The IMF expects advanced economies to grow 5.6 per cent this year, an upgrade from the 5.1 per cent it forecast in April, fuelled by the swift recovery of consumers and businesses. But it downgraded its 2021 forecast for emerging market and developing countries to 6.3 per cent from its April forecast of 6.7 per cent.

Gita Gopinath, the IMF’s chief economist, told reporters Tuesday that more needs to be done to supply vaccines to poorer nations that lag far behind wealthier nations.

“The recovery is not assured until the pandemic is beaten back globally,” Gopinath said. She asked that wealthy nations quickly fulfil their pledges to supply 1 billion does of the vaccine to developing nations.

“Concerted, well-directed policy actions ... can make the difference between a future where all economies experience durable recoveries or one where divergence is intensified, the poor get poorer and social unrest and geopolitical tensions grow.,” she said.

Advanced economies, in which close to 40 per cent of the population has been vaccinated, are largely reopening after last year’s COVID-19 lockdowns. But in developing and emerging market countries, the vaccination rate is just 11 per cent. Moreover, the governments of poorer countries cannot match the outpouring of government spending that rich countries have been using to propel their economic recoveries.

The United States is expected to register 7.0 per cent growth this year, a sharp reversal from last year’s 3.5 per cent drop and an upgrade from the 6.4 per cent growth the IMF had forecast for 2021 back in April.

US President Joe Biden’s ambitious spending plans are expected to fuel growth this year and next. The IMF predicts that the US economy will grow 4.9 per cent in 2022, up from the 3.5 per cent it projected three months ago.

The 19 European countries that share the euro currency are forecast to grow 4.6 per cent collectively this year, versus last year’s 6.5 per cent contraction. Japan, which endured a 4.7 per cent drop in economic growth in 2020, is expected to expand 2.8 per cent this year. But the 2021 forecast for Japan marks a downgrade from what the IMF expected in April, reflecting a resurgence of COVID-19 cases earlier this year.

In the developing world, the outlook for China, the world’s second-largest economy after the United States, was marked down to 8.1 per cent after the government scaled back spending and investment. The IMF also slashed its growth forecast for India to 9.5 per cent from 12.5 per cent three months ago after the country was overwhelmed by COVID cases.

Despite the brighter outlook for major economies, the outlook across the world has been clouded by uncertainty over the delta variant of the coronavirus and the uneven progress of vaccination campaigns.

In the update to its World Economic Outlook, the IMF expressed concern that any major resurgence of inflation would pressure the world’s central banks into raising interest rates and thereby threatening the global recovery. Still, it expects inflation to return to pre-pandemic levels in most countries next year.