IMF increases global growth forecast, says crisis end is ‘increasingly visible’

PUBLISHED: Tue, 06 Apr 2021 16:44:30 GMT
Silvia Amaro
CNBC
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Key Points
  • The latest round of fiscal stimulus in the U.S., along with vaccine rollouts across the world, have made the organization more confident about the global economy this year.
  • The IMF expects the world economy to grow by 6% in 2021, up from its 5.5% forecast in January.
  • For advanced economies, the IMF estimated growth of 5.1%, with the United States set to expand by 6.4%.
The International Monetary Fund’s logo at its headquarters in Washington, D.C.
Thomas Trutschel | Photothek | Getty Images

LONDON — The International Monetary Fund is expecting a stronger economic recovery in 2021 as Covid-19 vaccine rollouts get underway, but it warns of “daunting challenges” given the different rates of administering shots across the globe. 

The organization said Tuesday it expects the world economy to grow by 6% in 2021, up from its 5.5% forecast in January. Looking further ahead, global GDP for 2022 is seen increasing by 4.4%, higher than an earlier estimate of 4.2%.

“Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible,” IMF chief economist Gita Gopinath said in the latest World Economic Outlook report.

The latest round of fiscal stimulus in the U.S., along with the vaccine rollouts across the world, have made the group more confident about the global economy this year.

“Nonetheless, 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,” Gopinath added.

The IMF estimated growth of 5.1% for advanced economies this year, with the United States expanding by 6.4%.

The group’s forecast for emerging and developing economies’ growth is 6.7% for 2021, with India expected to expand by as much as 12.5%.

“Within-country income inequality will likely increase because young workers and those with relatively lower skills remain more heavily affected in not only advanced but also emerging markets and developing economies,” Gopinath warned, adding that lower levels of female employment was also exacerbating disparities.

As a result, the IMF said governments should continue to focus on “escaping the crisis” by providing fiscal support, including to their health-care systems. In a second phase, “policymakers will need to limit long-term economic scarring” from the crisis and boost public investment, it added.

“Without additional efforts to give all people a fair shot, cross-country gaps in living standards could widen significantly, and decades-long trends of global poverty reduction could reverse,” Gopinath said.

Recovery in the U.S.

The latest forecasts suggest that the United States is well placed to experience a solid economic recovery in 2021, in contrast to much of the world, where it’s likely to take longer to return to precrisis levels.

The positive assessment for the U.S. is highly driven by President Joe Biden’s $1.9 trillion coronavirus rescue package, which came into force last month.

Unemployment in the United States is expected to fall from 8.1% in 2020 to 5.8% this year and to 4.1% in 2022, according to the latest IMF projections.

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In February, Treasury Secretary Janet Yellen said the U.S. could return to full employment in 2022. “There’s absolutely no reason why we should suffer through a long slow recovery,” she told CNN at the time.

The IMF’s latest forecasts confirm that the U.S. is on track to not only return but exceed its pre-pandemic performance this year.

“Among advanced economies, the United States is expected to surpass its pre-Covid GDP level this year, while many others in the group will return to their pre-COVID levels only in 2022,” Gopinath said.

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