Stronger recoveries from the Covid-19 pandemic in the US, the UK and other rich western countries will result in faster than expected growth for the global economy this year, the International Monetary Fund has predicted.
The Washington-based IMF’s half-yearly World Economic Outlook (WEO) said successful vaccine programmes, businesses adapting to the challenges of lockdown and Joe Biden’s $1.9tn (£1.4tn) stimulus package had been key factors in the upgrade.
After contracting by 3.3% in 2020, the IMF said the world economy would now grow by 6% in 2021 and a further 4.4% in 2022. The last WEO in October had predicted expansion of 5.2% in 2021 and 4.2% in 2022. The October forecast for 2021 was later upgraded to 5.5% growth in January this year.
The IMF said governments had spent $16tn in their attempts to mitigate the economic damage caused by the virus and that without the unprecedented policy response the global economy would have contracted by 10% last year.
The WEO warned that the recovery would be uneven, with faster progress in rich countries further advanced with their vaccine programmes and with the financial firepower to pay for stimulus packages. Inequality would increase both between and within countries, the WEO said.
Of the advanced countries, the US has recorded the biggest improvement in its prospects, with the IMF raising its growth forecasts by 1.3 points to 6.4% in 2021 and 1.0 points to 3.5% in 2022. The UK is expected to grow by 5.3% in 2021 and by 5.1% in 2022 – an upward revision of 0.8 and 0.1 percentage points respectively since January.
The UK was one of the hardest hit western economies in 2020 but the IMF expects it to be the fastest-growing G7 country in 2022, outstripping the US, Japan, Germany, France, Italy and Canada. Gita Gopinath, the IMF’s economic counsellor, said the UK’s prospects had been boosted by its vaccine programme and by Rishi Sunak’s budget.
Gopinath said the IMF backed the call by the US treasury secretary, Janet Yellen, for a global minimum corporate tax rate to make it more difficult for big corporations to shift their profits between jurisdictions.
“It is one year into the Covid-19 pandemic and the global community still confronts extreme social and economic strain as the human toll rises and millions remain unemployed,” Gopinath said.
“Yet, even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible. Thanks to the ingenuity of the scientific community hundreds of millions of people are being vaccinated and this is expected to power recoveries in many countries later this year.”
Gopinath said swift action had prevented a repeat of the financial meltdown of 2008 and as a result medium-term losses – output that will never be recovered – would be smaller at about 3% of global GDP. Unlike after the 2008 crisis, it would be emerging markets and low-income countries that could be expected to suffer greater scarring given their limited ability to stimulate their economies.
According to IMF calculations, cumulative per capita income losses over 2020–22, compared with pre-pandemic projections, will be 20% of 2019 per capita GDP in emerging markets and developing economies (excluding China), while in advanced economies the losses are expected to be 11%.
Despite becoming more optimistic about growth prospects, Gopinath said the future presented “daunting” challenges.
“The pandemic is yet to be defeated and virus cases are accelerating in many countries. Recoveries are also diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliant on tourism do less well.”
The WEO said the expected recovery followed a contraction that had been particularly hard on the young, women, workers with relatively low educational attainment and the informally employed.
“Income inequality is likely to increase significantly because of the pandemic,” it said. “Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections.”