The global growth forecast remained unchanged at 6% for the calendar 2021 as upgrades in the developed world were offset by downgrades in several countries that experienced renewed waves, notably India.
“Growth prospects in India have been downgraded following the severe second COVID wave during March–May and expected slow recovery in confidence from that setback,” the IMF said in its latest edition of World Economic Outlook released Tuesday.
The forecast for FY23 has been raised to 8.5%, an upgrade of 1.6 percentage points.
The report said fault lines have widened in the global recovery as vaccine access split the world into two blocks with those having access likely to see further normalisation of activity while others may face resurgent infection and death.
The advanced economies, which have achieved high vaccination rates, are now likely to grow 5.6% in 2021, a half a percentage point increase from April forecast. The US growth is now seen at 7% compared with 6.4% earlier.
China’s growth forecast has been cut by 0.3% to 8.1%.
“Faster-than-expected vaccination rates and return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades,” IMF’s economic counsellor and head of research department Gita Gopinath said in a blogpost.
“In countries with high vaccination coverage, such as the United Kingdom and Canada, the impact would be mild; meanwhile countries lagging in vaccination, such as India and Indonesia, would suffer the most among G20 economies,” the IMF added.
However, it warned that risks remained for everyone as long as the virus remained in circulation.
“Steady recovery is not assured anywhere so long as segments of the population remain susceptible to the virus and its mutations,” the multilateral lender said.
The IMF had raised India’s FY22 growth forecast to 12.5% in April from 11.5% projected in January, as the recovery gained strength before the second wave.
The Fund said better global cooperation on vaccines could help prevent renewed waves of infection and emergence of new variants and end the health crisis sooner than assumed, allowing for faster normalisation of activity particularly among emerging markets and developing economies.
Rising price pressures
The IMF flagged the recent price pressures, which reflected unusual pandemic-related developments and transitory supply-demand, but said it was expected to return to its pre-pandemic ranges in most countries in 2022.
High inflation has emerged as key concern for global financial markets, as it could force central banks to tighten monetary policy.
It said elevated inflation was expected in some emerging market and developing economies, related in part to high food prices and urged central banks to generally look through transitory inflation pressures and avoid tightening until there is more clarity on the underlying price dynamics.
“Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions,” it said.
It said there was a risk of these transitory pressures becoming more persistent and central banks may need to take pre-emptive action.
Commodity prices are expected to increase at a significantly faster pace than assumed in the April 2021 WEO. Amid the strengthening global recovery, oil prices are expected to rise close to 60% above their low base in 2020.