Updates on economic impact of the coronavirus
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Emerging economies’ limited access to Covid vaccines threatens to hamper the global economic recovery from the pandemic, the IMF warned, as it upgraded its growth forecasts for advanced economies but lowered them for other parts of the world.
The fund still expects global global growth of 6 percent this year — unchanged from its last projection in April — it said in its latest World Economic Outlook on Tuesday. But it warned that since then new waves of coronavirus infections, including the spread of the Delta variant, have made the outlook more uncertain and uneven.
Vaccine access has emerged as the key fault line along which the global recovery is splitting into two blocs, the IMF said. Some countries “can look forward to a further normalization of activity later this year”, but many others “are still facing re-emerging infections and rising Covid death tolls”.
Even countries on the recovery track should not be complacent about this, the Fund warned: “The recovery”. . . is not insured, even in countries where the infection rate is currently very low, as long as the virus is circulating elsewhere.”
The IMF cut its growth forecast for emerging and developing economies this year by 0.4 percentage points to 6.3 percent. The bleak outlook was worst in Southeast Asia and South Asia, especially India.
In contrast, the IMF raised its forecast for output growth in advanced economies this year by 0.5 percentage points to 5.6 percent, with notable improvements for the US, UK, Canada and Italy. France and Germany remained unchanged, while growth expectations for Spain and Japan were revised downwards.
IMF chief economist Gita Gopinath told the The Washington City Times: “We are still in a situation where the pandemic is wreaking havoc around the world.”
While it was clear that the Delta variant was “quickly becoming the dominant species,” the economic impact in wealthier countries has been difficult to assess, she argued.
“As we watch things rise . . . if you look at hospital admissions and deaths, you’ve seen a much more muted effect. . . We need to see if this will really have a big impact on spending patterns, on travel, on confidence effects, and so on. And we don’t see that yet,” she says.
A key risk identified by the IMF was inflationary pressures. While the world’s major central banks expect the pace of price growth to peak later this year and then slow down, the Fund warned that inflation could prove more persistent than it anticipated.
There is a risk that this could lead to a more aggressive normalization of central bank policies, which would hit the emerging and emerging economies particularly hard, the report said.
“A double blow to emerging markets and emerging economies from deteriorating pandemic dynamics and tightening external financial conditions would severely hamper their recovery and drag global growth below the baseline of this outlook. [scenario]the IMF said.
However, Gopinath said she was “not concerned” about the risk of an inflation spiral in the US, where the Biden administration’s spending plans are expected to fuel the economic recovery.
The IMF raised its growth forecasts for the world’s largest economy by 0.6 percentage points this year and 1.4 percentage points next year, to 7 percent and 4.9 percent, respectively — assuming Washington’s infrastructure and social spending programs are not Congress will be approved.
US Federal Reserve policymakers will meet on Wednesday to discuss a possible slowdown in the pace of asset purchases later in the year as the pace of monetary support for the recovery begins to slow.
The Fed’s favored inflation gauge — the leading personal consumption spending index — is expected to accelerate sharply from its current level of 3.4 percent to eventually reach 4 percent. But as temporary supply constraints and other pandemic-related quirks ease, those pressures will ease, with core PCE drifting to 2.5 percent next year, the IMF predicts.
“Everything we’ve seen so far matches the prediction that inflation will fall next year,” Gopinath said.
The Fund’s projections for inflation and employment suggest that U.S. interest rates will begin to rise in late 2022 or early 2023, Gopinath said — faster than Fed officials had predicted.