WASHINGTON (Reuters) – The International Monetary Fund on Jan 26 raised its forecast for global economic growth in 2021 and said the coronavirus-triggered downturn last year would be nearly a full percentage point less severe than expected.
It said multiple vaccine approvals and the launch of vaccinations in some countries in December 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 the global lender 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 a decision by new US President Joe Biden to provide funding for the World Health Organization’s COVAX vaccine initiative was “a very big step” to containing the pandemic.
“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.
“We are living in highly uncertain times,” she said. “A lot depends on this race between a mutating virus and vaccines, and how much policy support can hold up.”
Close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021, with the pandemic wiping out progress made in reducing poverty over the past two decades. Large numbers of people remained unemployed and underemployed in many countries, including the United States.
Gopinath said advanced economies were recovering more quickly, and it was important for countries with fewer resources to receive aid from the international community, including potential debt restructuring.
“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 added.
In its latest World Economic Outlook, the IMF forecast a 2020 global contraction of 3.5 per cent, an improvement of 0.9 percentage points from the 4.4 per cent slump predicted in October, reflecting stronger-than-expected momentum in the second half of last year.
It predicted global growth of 5.5 per cent in 2021, an increase of 0.3 percentage points from the October forecast, 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 US economy, the largest in the world, was expected to grow by 5.1 per cent 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 US$900 billion in additional fiscal support approved in December.
The outlook would likely improve further if the US Congress passes a US$1.9 trillion relief package proposed by Biden, Gopinath said, forecasting a 5 per cent boost over three years if the package won approval.
China’s economy is expected to expand by 8.1 per cent in 2021 and 5.6 per cent in 2022, compared with the October forecasts of 8.2 per cent and 5.8 per cent, respectively, while India’s economy is seen growing 11.5 per cent 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 normalised 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.