IMF boosts global growth forecast, warns of divergence in rebound

It forecasts 6% growth, repeats call for rich nations to help poorer ones fight Covid-19

The IMF, which is holding its spring meetings with the World Bank virtually this week, has emphasised that policymakers should scale back government support "gradually", to avoid "fiscal cliffs". Also, central bankers should give "clear forward guida
The IMF, which is holding its spring meetings with the World Bank virtually this week, has emphasised that policymakers should scale back government support "gradually", to avoid "fiscal cliffs". Also, central bankers should give "clear forward guidance" on monetary policy to minimise the danger of disruptive capital flows. PHOTO: AGENCE FRANCE-PRESSE

WASHINGTON • The International Monetary Fund (IMF) has upgraded its global economic growth forecast for the second time in three months, while warning about widening inequality and a divergence between advanced and lesser-developed economies.

The global economy will expand 6 per cent this year, up from the 5.5 per cent pace estimated in January, the IMF said in its World Economic Outlook published yesterday.

That would be the most in four decades of data, coming after a 3.3 per cent contraction last year that was the worst peacetime decline since the Great Depression.

The fund, which is holding its spring meetings with the World Bank virtually this week, underscored that policymakers should scale back government support "gradually", to avoid "fiscal cliffs". Central bankers should also give "clear forward guidance" on monetary policy to minimise the danger of disruptive capital flows.

The IMF reiterated its call for wealthy nations to help poorer ones combat Covid-19, and underlined the need to prioritise health-care spending more broadly to defeat the pandemic.

US President Joe Biden's US$1.9 trillion (S$2.5 trillion) stimulus package, which was passed last month, will help boost the country's gross domestic product (GDP) to above its pre-pandemic level this year and will have sizeable positive spillovers for trading partners.

For 2022, the fund has projected global growth to be at 4.4 per cent, higher than the 4.2 per cent previously forecast. Still, many advanced economies will not return to their pre-pandemic output levels until next year, the IMF said, and emerging-market and developing economies may take until 2023 to recover those levels.

The world economy in 2024 will be about 3 per cent smaller than anticipated before the Covid-19 outbreak, the IMF said last week.

"The outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis," said IMF chief economist Gita Gopinath in the report.

Much of the focus of this week's meetings will be on the IMF's proposed US$650 billion issuance of reserve assets known as special drawing rights, which aims to boost global liquidity and help emerging and low-income nations deal with mounting debt and Covid-19 healthcare costs.

The response to last year's crisis by policymakers prevented a collapse that would have been at least three times worse, and the medium-term losses for the global economy are expected to be smaller than the global financial crisis a decade ago, the IMF said.

But low-income countries and emerging markets are seen suffering more this time around - a contrast to 2009, when advanced economies were hit harder.

The divergent recovery paths are likely to widen the global gap in living standards, the IMF said.

The fund estimated per-capita income losses over the 2020-22 period in emerging and developing markets excluding China at the equivalent of 20 per cent of the per-capita GDP figures for 2019.

That is much worse than the 11 per cent the IMF sees in advanced economies.

Among the fund's other findings: about 95 million people fell into extreme poverty last year; the number of undernourished people grew by 80 million; globally, economies dependent on tourism face a particularly difficult recovery outlook given the expected slow pace of normalisation of cross-border travel.

But in advanced economies, pent-up demand will drive growth based on savings from last year, as vulnerable people get vaccinated and contact-intensive industries resume, the IMF said.

Among the forecasts released yesterday, the fund noted that advanced economies will expand 5.1 per cent this year, compared with the 4.3 per cent previously seen. It also said emerging market and developing economies will grow 6.7 per cent, up from 6.3 per cent.

Meanwhile, inflation data globally could turn volatile in the coming months, given record-low commodity prices a year ago, but the trend should prove short-lived, the IMF said. The muted outlook reflects a weak labour market, high unemployment and little worker bargaining power, it added.

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A version of this article appeared in the print edition of The Straits Times on April 07, 2021, with the headline 'IMF boosts global growth forecast, warns of divergence in rebound'. Subscribe