The IMF on Tuesday said that unprecedented public spending to fight the COVID-19 pandemic, primarily by the US, would push global economic growth to 6 percent this year, a rate unseen since the 1970s.
The IMF raised its growth forecast for this year from 5.5 percent less than three months ago, reflecting a rapidly brightening outlook for the US economy, which the fund now sees growing by 6.4 percent this year — the fastest since the early 1980s.
The US forecast was raised by 1.3 percentage points from the IMF’s 5.1 percent projection in late January and nearly double the rate it estimated in October last year.
The improvement was largely due to increased fiscal support, including a new US$1.9 trillion US aid package, accelerated vaccinations and continued adaptation of economic activity to overcome pandemic restrictions, IMF chief economist Gita Gopinath said.
“Even with high uncertainty about the path of this pandemic, a way out of this health economic crisis is increasingly visible,” Gopinath told a news conference.
However, she warned that the pandemic was still far from defeated and COVID-19 cases were still rising in many countries.
“Recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support and more reliance on tourism do less well,” Gopinath said.
The latest World Economic Outlook, released at the start of the IMF’s and World Bank’s spring meetings, showed that emerging market economies lagged well behind their developed peers, rising just 0.4 percentage point — half of the advanced economy markup — to 6.7 percent from the view in January.
The fund said that the world economy contracted 3.3 percent last year, a modest upgrade from an estimated contraction of 3.5 percent in its January update.
The outlooks for other advanced economy heavyweights, such as Germany, France and Japan, hardly improved at all since January.
Nonetheless, with the heft of the US outlook improvement as the main driver, the IMF marked up its advanced economy growth estimate to 5.1 percent from 4.3 percent.
The US economy this year would join China in regaining a level of GDP that exceeds where it stood before the pandemic struck just more than a year ago, the IMF said.
China recaptured all of its lost growth by the end of last year.
China’s growth forecast for this year was raised by 0.3 percentage point to 8.4 percent, an increase that Gopinath said largely reflected external demand for Chinese exports, driven largely by the US stimulus spending.
However, she said that consumer spending in China was still lagging, and growth was primarily being driven by public investments.
The IMF emphasized the high degree of uncertainty surrounding the outlook, and that improvements could easily be tripped up by any of several factors, with success against the pandemic topping the list.
“Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines can lead to a sharp downgrade,” it said.
Another big risk centers around the persistence of accommodative policies, from the US in particular.
Long-term interest rates around the world have risen sharply since January, as market participants revise their expectations for how soon the US Federal Reserve begins to normalize its policy stance.
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