The International Monetary Fund (IMF) has upgraded its global growth forecast slightly for 2021 as recent vaccine approvals and the promise of more to come have boosted hopes that the COVID-19 pandemic will be on the run later this year. However, the organization said renewed waves of infections and new variants of the virus pose a threat for the outlook.
In its most recent World Economic Outlook report, the IMF said that “amid exceptional uncertainty,” it projects the global economy will grow 5.5% in 2021 and 4.2% in 2022. The 2021 forecast has been revised 0.3 percentage point higher from the IMF’s previous outlook in October due to expectations that COVID-19 vaccines will help strengthen activity later in the year and that additional policy support will bolster a few large economies.
The expected recovery in growth for 2021 follows a “severe collapse” last year that led to a 3.5% contraction in global growth for the year. Despite the severity of the contraction, it was 0.9 percentage point better than the 4.4% contraction the IMF had forecast in its October outlook due to stronger-than-expected momentum in the second half of last year.
The IMF noted that the contraction has had “acute adverse impacts” on women, children, the poor, the informally employed, and those who work on a contract basis. It also said that the strength of the economic recovery will likely vary significantly among countries, depending on their access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis.
The report said policy actions should provide effective support until a recovery is firmly underway, and such actions should focus on “advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence.” The IMF reiterated an observation from its October report that a green investment push combined with moderate but rising carbon prices would yield needed emissions reductions while supporting the recovery from the pandemic recession.
“Strong multilateral cooperation is required to bring the pandemic under control everywhere,” the report said. “Many countries, particularly low-income developing economies, entered the crisis with high debt that is set to rise further during the pandemic. The global community will need to continue working closely to ensure adequate access to international liquidity for these countries.”
The IMF said that despite the high human toll of the pandemic, economic activity appears to be increasingly adapting to a low contact world. It also said additional policy measures at the end of last year, particularly in the US and Japan, are expected to provide further support over this year and next to the global economy. As a result, there has been a stronger starting point for the 2021–22 global outlook than was expected in the previous forecast.
However, surging infections and new variants of the coronavirus, along with renewed lockdowns and vaccine distribution problems, could negatively affect the outlook, the IMF said.
“Much remains to be done on the health and economic policy fronts to limit persistent damage from the severe contraction of 2020 and ensure a sustained recovery,” said the IMF.