IMF upgrades economic recovery expectations

The International Monetary Fund (IMF) is now forecasting a stronger recovery for the world economy.

In its latest report, World Economic Outlook: Managing Divergent Recoveries, the IMF forecasts that global GBP will climb by six per cent in 2021, suggesting a rebound from 2020, when GDP fell by 3.3 per cent globally.

In its previous report, it had predicted the global economy to climb by 5.5 per cent in 2021.

However, whilst the IMF expects global GDP to rebound to its pre-COVID levels in 2021, it forecasts that this will not be the case in the Euro Area, where GDP declined by 6.6 per cent in 2020 and is only expected to climb 4.4 per cent in 2021, before reaching its pre-COVID levels in 2022, where the IMF expects a 3.8 per cent increase. 

On the other hand, the US economy is expected to grow by 6.4 per cent in 2021, after falling 3.5 per cent in 2020.

Emerging markets and developing economies are expected to lead the global economy, with economies in this category set to increase by 6.7 per cent in 2021, after falling 2.2 per cent in 2020.

In a blog accompanying the forecasts, the IMF’s chief economist Gita Gopinath says a way out of the health and economic crisis is increasingly visible. She predicts that vaccinations are likely to power recoveries in many countries during 2021.

However, she warned that economic recoveries are diverging. Countries with slower vaccine rollouts, more limited support and those which are more reliant on tourism are likely to do less well, she says.

Additionally, the report says that gains in poverty reduction have been reversed. People counted as extremely poor are expected to have increased by 95 million during 2020, as the number of people who are undernourished has increased by 80 million, the report says.

Comparing the impact of COVID to the 2008-2009 global financial crisis, the IMF predicts, “although medium-term losses for the global economy are expected to be smaller than in the aftermath of the global financial crisis, the cross-country pattern of damages is, however, likely to be different this time”.

Low-income countries and emerging markets are expected to suffer more compared to the fallout from the earlier crisis “when advanced economies were harder hit”.