IMF Lifts Global Growth Forecast, Warns of Diverging Rebound

(Bloomberg) -
The International Monetary Fund has improved its forecast for global economic growth for the second time in three months, while warning of increasing inequality and divergence between advanced and less developed economies.
The global economy will grow by 6% this year, compared to the rate of 5.5% estimated in January, the IMF said in its global economic outlook published on Tuesday. That would be the highest level in four decades, after a 3.3% decline last year, which was the worst peacetime decline since the Great Depression.
The IMF sees advanced economies less affected by the virus this year and beyond, with low-income countries and emerging economies suffering more than it did in 2009 when rich nations were harder hit. With U.S. gross domestic product expected to be even larger for the next year than predicted before Covid-19, the IMF's forecasts show little scars from the pandemic for the world's leading economy.
The fund, which is practically holding its spring meetings with the World Bank this week, stressed that policy makers should “gradually” reduce government support in order to avoid “fiscal cliffs”. Central bankers should also provide "clear forward guidelines" for monetary policy to minimize the risk of disruptive capital flows.
The IMF reiterated its call for the rich to help fight Covid-19, highlighting the need to prioritize health spending more broadly in order to beat the pandemic.
President Joe Biden's $ 1.9 trillion stimulus package passed last month will help bring US GDP above pre-pandemic levels this year and will have a significant positive impact on trading partners . It will make the US the only major economy in the next year to surpass production levels it would have had without the pandemic, IMF chief economist Gita Gopinath said in a briefing with reporters.
For 2022, the fund posted global growth of 4.4%, up from the previously forecast 4.2%.
Still, many advanced economies will not return to pre-pandemic production levels until 2022, the IMF said, and it could take until 2023 for emerging and developing economies to recover. The global economy in 2024 will be about 3% smaller than expected before the Covid-19 outbreak, the IMF said last week.
"The outlook presents formidable challenges arising from differences in the pace of recovery both within and within countries and the potential for sustained economic damage from the crisis," Gopinath said in the report.
Much of the focus of this week's meetings will be on the IMF's proposed $ 650 billion reserve asset issuance, known as special drawing rights. The aim is to increase global liquidity and help emerging and low-income countries deal with rising debt and Covid-19 health. Maintenance costs.
Policy makers' response to last year's crisis prevented a collapse at least three times worse, and medium-term losses to the global economy are likely to be less than the global financial crisis a decade ago, the IMF said Tuesday.
Related Topics: IMF Says Fed Surprises Can Trigger Outflows From Emerging Markets
The different recovery paths are likely to widen the global gap in living standards, the IMF said. The Fund estimated 2020-22 per capita income losses in emerging and developing markets excluding China to be 20% of GDP per capita for 2019. This is much worse than the 11% the IMF sees in advanced economies.
Amongst other things:
It is estimated that around 95 million people will have fallen into extreme poverty by 2020. The number of undernourished people is said to have increased by 80 million
Globally, tourism-dependent economies are facing particularly difficult recovery prospects given the expected slow normalization of cross-border travel, the Fund said.
In advanced economies, pent-up demand will drive growth due to savings starting in 2020 as vulnerable people are vaccinated and contact-intensive industries resume, the IMF said.
Among the forecasts released on Tuesday:
The advanced economies will grow 5.1% this year, compared to the 4.3% previously observed. The emerging market and developing countries will grow 6.7% compared to 6.3% in the US. is 6.4% after 5.1% in January. The previously calculated fund calculated that the incentives launched in March will increase US production by a cumulative 5% to 6% over a three-year period. The euro area will grow 4.4%, up from 4.2% seen earlier. Japan will grow by 3.3% compared to 3.1% in China growth of 8.4% versus 8.1% India will grow by 12.5% ​​versus 11.5%
The IMF pointed to the risk that Covid-19 could become an endemic disease of unknown severity if virus mutations surpass vaccine adoption.
Meanwhile, inflation data could become volatile in the coming months given record low commodity prices around the world a year ago, but the trend should prove short-lived, the IMF said. The subdued outlook reflects a weak labor market, high unemployment and little bargaining power on the part of workers.
Global trade volume is expected to accelerate 8.4% this year on a rebound in goods purchases, up from 8.1% in January.
Separately, the IMF warned in its report on global financial stability that the world economy could still face some bumps as the unprecedented flood of government support has unintended consequences.
"Excessive risk exposure in the markets contributes to stretched valuations, and rising financial vulnerabilities can become structural problems if not addressed," the report said.
(Updates with comments from the Chief Economist from paragraph six.)
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