IMF Increases Global Growth Forecast on Signs of Improvement

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Key Takeaways

IMF chief economist points to encouraging signs of global recovery in the latest report
The US projected to remain in the lead as economies return to pre-Covid growth levels

The International Monetary Fund (IMF) said on Tuesday that it expects the world economy to grow by 6% this year, projecting what would be the fastest economic expansion in at least four decades. The optimistic global growth outlook underlines the vaccine rollout and the increased government spending around the globe aimed to buoy the global economy. Moreover, as the second quarter unfolds, more countries are considering opening up their economies and allowing businesses to operate after the lockdowns.

The IMF revised upward its expectations for growth for almost all countries. The global forecast for 2021 was lifted to 6% from 5.5% in January, whereas the organization sees growth of 4.4% in 2022, higher than the previous GDP growth estimation of 4.2%. The US is expected to take the lead and drive the recovery as the world’s biggest economy is boosted by large fiscal spending. The IMF projects US GDP to grow by 6.4% this year, revised upward from 5.1%. China’s economy is projected to expand 8.4% in 2021, up from 8.1% earlier.

The US government is determined to plow nearly $5tn into the economy since last spring in efforts to keep the economy floating and moving to the upside. The latest economic plan, a $2.3tn infrastructure package, follows the $1.9tn fiscal stimulus bill approved early in March.

“At $1.9 trillion, the Biden administration’s new fiscal package is expected to deliver a strong boost to growth in the United States in 2021 and provide sizable positive spillovers to trading partners,” the latest World Economic Outlook report said.

A Post-Pandemic Light at the End of the Tunnel

One of the authors of the report, IMF chief economist Gita Gopinath, is optimistic that “even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible.”

“Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” Ms. Gopinath also commented.

The “divergences in the speed of recovery” will come as a result of the uneven reopening of economies around the world, combined with the uneven distribution of Covid-19 vaccines. The IMF’s chief economist also notes that the nations to undergo a sluggish recovery would most likely be emerging economies with little access to Covid-19 vaccines.

Countries in Europe that were hit harder than others and are still struggling with a third wave of the coronavirus are likely to take longer to recover. The IMF projects that Europe will return to pre-pandemic growth levels and catch up with the US in about three years.

By 2024, the IMF expects the European economy to recover, largely due to the help of the European Central Bank. The slower pace of recovery in Europe, compared with the US, is partly attributed to the actions of their respective central banks. “Monetary policy actions by the Federal Reserve have a significant influence on financial conditions in emerging markets, whereas spillovers from policies of the European Central Bank (ECB) are smaller and regional,” the report mentions.