IMF sees a faster economic recovery as vaccines are deployed

The global economy is recovering from the coronavirus pandemic faster than previously expected, largely thanks to the strength of the United States, but the International Monetary Fund warned Tuesday that major challenges remained as the uneven rollout of vaccines threatens to leave developing countries behind.

The IMF said it was upgrading its global growth forecast for the year thanks to vaccinations of hundreds of millions of people, efforts that are expected to help fuel a sharp rebound in economic activity. The international body now expects the global economy to expand by 6% this year, up from its previous projection of 5.5%, after a contraction of 3.3% in 2020.

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

The emergence from the crisis is being led by the wealthiest countries, particularly the United States, where the economy is now projected to expand by 6.4% this year. The euro area is expected to expand by 4.4% and Japan is forecast to expand by 3.3%, according to the IMF.

Among the emerging market and developing economies, China and India are expected to lead the way. China’s economy is projected to expand by 8.4%, and India’s is expected to expand by 12.5%.

Gopinath credited the robust fiscal support that the largest economies have provided for the improved outlook and pointed to the relief effort enacted by the United States. The IMF estimates that the economic fallout from the pandemic could have been three times worse if not for the $16 trillion of worldwide fiscal support.

Despite the rosier outlook, Gopinath said that the global economy still faced “daunting” challenges.

Low-income countries are facing bigger losses in economic output than advanced economies, reversing gains in poverty reduction. And within advanced economies, low-skilled workers have been hit the hardest and those who lost jobs could find it difficult to replace them.

“Because the crisis has accelerated the transformative forces of digitalisation and automation, many of the jobs lost are unlikely to return, requiring worker reallocation across sectors — which often comes with severe earnings penalties,” Gopinath said.

The IMF cautioned that its projections hinged on the deployment of vaccines and the spread of variants of the virus, which could pose both a public health and economic threat. The fund is also keeping a close eye on US interest rates, which remain at rock-bottom levels but could pose financial risks if the Federal Reserve raises them unexpectedly.

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