Economic growth led by the United States and China is accelerating, amplifying the risks of an uneven global recovery, the head of the IMF said on Tuesday.
“In January, we projected global growth at 5.5% in 2021,” said IMF chief Kristalina Georgieva in an address ahead of the body’s annual spring meeting co-hosted with the World Bank.
“We now expect a further acceleration,” she said ahead of the international organisation’s official update of its forecast in a week.
Key factors in the improved outlook include the US passage of President Joe Biden’s $1.9 trillion economic relief package and an expected bounce from coronavirus vaccines increasingly available in larger economies, Georgieva said.
She also praised the “extraordinary effort” of workers throughout the health care universe, including doctors, nurses and vaccine scientists.
Governments played a key role in averting a worldwide depression, Georgieva said, with some $16 trillion in fiscal support and a “massive liquidity injection by central banks”, averting complete disaster.
Without these steps, the worldwide economic contraction of 3.5% in 2020 “would have been at least three times worse,” she said.
But the IMF is seeing increasing signs of a “multi-speed recovery” powered by the United States and China, which are on track to enjoy growth by the end of 2021 that outpaces their pre-crisis performance.
In general, the global outlook remains clouded by “extremely high uncertainty,” with economic activity still tied closely to the pandemic.
“So much depends on the path of the pandemic – which is now shaped by uneven progress in vaccination and the new virus strains that are holding back growth prospects, especially in Europe and Latin America,” she said.
Especially vulnerable are emerging markets with a more “fragile” government.
“Many are highly exposed to hard-hit sectors, such as tourism,” she said. “Now they face less access to vaccines and even less room in their budgets.”
A key worry in a global economy fractured by different-paced recoveries would be a sudden rise in US growth that leads to a jump in interest rates and capital flight from emerging regions.
“We expect inflation to remain contained, but faster US recovery could cause a rapid rise in interest rates, which could lead to a sharp tightening of financial conditions – and significant capital outflows from emerging and developing economies,” she said.
Georgieva urged generous investment in the production and distribution of vaccines to facilitate the transition to the post-Covid economy.
Published in The Express Tribune, March 31st, 2021.
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