The logo of the International Monetary Fund at its headquarters in Washington, DC
Thomas Trutschel | Photothek | fake images
LONDON – The International Monetary Fund expects a stronger economic recovery in 2021 as launches of the Covid-19 vaccine get underway, but warns of “overwhelming challenges” given different injection rates around the world.
On Tuesday, the organization said it expects the world economy to grow 6% in 2021, up from its forecast of 5.5% in January. Looking ahead, world GDP (gross domestic product) by 2022 is projected to increase by 4.4%, up from a previous estimate of 4.2%.
“Even with high uncertainty about the path of the pandemic, a way out of this economic and health crisis is increasingly visible,” said Gita Gopinath, IMF chief economist, in the latest World Economic Outlook report.
The latest round of fiscal stimulus in the US, coupled with vaccine launches around the world, have made the group more confident in the global economy this year.
Income inequality within the country is likely to increase as young workers and those with relatively lower skills continue to be most affected not only in advanced markets but also in emerging markets and developing economies.
Gita Gopinath
IMF Chief Economist
“However, the outlook presents enormous challenges related to divergences in the speed of recovery both between 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, and the United States expanded 6.4%.
Meanwhile, the group’s forecast for growth in emerging and developing economies is 6.7% by 2021, and India is expected to expand by as much as 12.5%.
“Income inequality within the country is likely to increase because young workers and those with relatively lower skills continue to be most affected not only in advanced markets but also in emerging markets and developing economies,” Gopinath warned, adding that lower levels of female employment also exacerbate disparities.
As a result, the IMF said governments should continue to focus on “escaping the crisis” by providing fiscal support, including to their health systems. In a second phase, “legislators will have to limit the long-term economic scars” of the crisis and boost public investment, he added.
“Without additional efforts to give everyone a fair chance, gaps between countries in living standards could widen significantly and decades-long trends of global poverty reduction could be reversed,” Gopinath said.
Recovery in the US
The latest forecasts suggest that the United States is well placed for a robust economic recovery in 2021, in contrast to much of the world, where it is likely to take longer to return to pre-crisis levels.
The positive assessment for the US is heavily driven by President Joe Biden’s $ 1.9 trillion coronavirus rescue package, which took effect last month.
As such, unemployment in the United States is expected to fall from 8.1% in 2020 to 5.8% this year and 4.1% in 2022, according to the latest IMF projections.
In February, Treasury Secretary Janet Yellen said the United States could return to full employment in 2022. “There is absolutely no reason why we should suffer a slow and protracted recovery,” she told CNN at the time.
The latest IMF forecasts confirm that the United States is on track to not only return, but surpass its pre-Covid levels this year.
“Among advanced economies, the United States is expected to exceed its pre-Covid GDP level this year, while many others in the group will return to their pre-COVID levels in 2022 alone,” Gopinath added.