The International Monetary Fund (IMF) expects global economic growth in 2021 to fall slightly below its July forecast of 6%, which will be seen in the next week’s updated World Economic Outlook, according to Kristalina Georgieva, IMF Managing Director.
Her remarks came during her speech delivered virtually, at an event hosted by Bocconi University and T20. Georgieva is setting the stage for the 2021 IMF Annual Meetings by delivering the outlook for the global economy and outlining policy priorities for the recovery.
She said that the world faces a global recovery that remains “hobbled” by the pandemic and its impact. the world is unable to walk forward properly—it is like walking with stones in our shoes.
Georgieva said that the most immediate obstacle is the ‘Great Vaccination Divide’—too many countries with too little access to vaccines, leaving too many people unprotected from COVID-19.
“At the same time, countries remain deeply divided in their ability to respond—in being able to support the recovery, and in their ability to invest for the future. But we can secure a stronger recovery everywhere and shape a better post-pandemic world for all. We can only do it by working together to overcome these divides,” she said.
Georgieva continued that the risks and obstacles to a balanced global recovery have become even more pronounced. She focused on three of them, including the divergence in economic growth, the inflation, and debt.
She said that the United States and China remain vital engines of growth even as their momentum is now slowing. A few advanced and emerging economies are still gaining momentum, including Italy and Europe more broadly.
By contrast, in many other countries, growth continues to worsen, hampered by low access to vaccines and constrained policy response, especially in some low-income nations. And this divergence in economic fortunes is becoming more persistent.
She revealed that economic output in advanced countries is projected to return to pre-pandemic trends by 2022. Meanwhile, most emerging and developing countries need many more years to recover.
Georgieva mentioned that the headline inflation rates have increased rapidly in a number of countries—but again, with some more affected than others.
“While we do expect price pressures to subside in most countries in 2022, in some emerging and developing economies, price pressures are expected to persist. One particular concern with inflation is the rise in global food prices—up by more than 30% over the past year. Together with rises in energy prices, this is putting further pressure on poorer families. More generally, inflation prospects remain highly uncertain,” said Georgieva.
She warned that amore sustained increase in inflation expectations could cause a rapid rise in interest rates, and a sharp tightening of financial conditions. This would pose a particular challenge for emerging and developing economies with high debt levels.
“We estimate that global public debt has increased to almost 100 percent of GDP. Much of this reflects the necessary fiscal response to the crisis as well as the heavy output and revenue losses due to the pandemic. Here we see yet another deep divide, with some countries more affected than others—especially in the developing world,” she said.
She explained further that many started the pandemic with very little fiscal firepower. Now they have even less room in their budgets—and very limited ability to issue new debt at favourable terms. In short, they face tough times and are caught on the wrong side of the fiscal financing divide.
To remove these “stones” from our shoes and overcome these divisions and obstacles to recovery, Georgieva briefed the answer in three points which are, vaccinate the world, calibrate policies to country circumstances, “accelerate” the reforms needed to transform economies.
She called on the richer nations to increase delivery of COVID-19 vaccines to developing countries, remove trade restrictions and close a $20 bn gap in grant funding needed for COVID-19 testing, tracing and therapeutics.
“Failure to close the massive gap in vaccination rates between advanced economies and poorer nations could hold back a global recovery, we could see global GDP losses rise to $5.3trn over the next five years,” she warned.
“Amid the sweeping global changes in the years—and decades—ahead, we see three priority issues for economic and financial stability: climate change, technological change, and inclusion,” she said.
“The green transition also presents huge opportunities: the shift to renewables, new electricity networks, energy efficiency, and low carbon mobility. And if we do this with a combination of supply policies, and we could raise global GDP by about 2 % this decade—and create 30 million new jobs,” Georgieva said.