IMF revises global growth rate to six per cent

International Monetary Fund (IMF) Managing Director Kristalina Georgieva  [REUTERS/Mike Theiler]

The International Monetary Fund (IMF) has raised its outlook for global economic growth again, forecasting worldwide output would rise six per cent this year.

This is a rate unseen since the 1970s, thanks largely to the unprecedented policy responses to the Covid-19 pandemic.

That upgrade, from 5.5 per cent less than three months ago, reflects a brightening outlook for the US economy, which the IMF now sees growing by 6.4 per cent in 2021, the fastest since the early 1980s.

That’s up 1.3 percentage points from the IMF’s 5.1 per cent projection in late January and nearly double the rate it estimated in October.

The IMF forecast, if realised, would mark the fastest pace of global growth since 1976 but also comes off the steepest annual downturn of the post-war era last year as the pandemic brought commerce around the world to a near standstill at times.

The fund said the global economy contracted 3.3 per cent in 2020, a modest upgrade from an estimated contraction of 3.5 per cent in its January update. The latest World Economic Outlook, released at the start of the IMF’s and World Bank’s spring meetings - reflects a dramatic divergence between the outlook for the US and the rest of the world courtesy of another Sh209 trillion ($1.9 trillion) in pandemic relief spending recently enacted in Washington.

The outlooks for other advanced economy heavyweights, such as Germany, France and Japan, hardly improved at all since January.

Nonetheless, with the heft of the US outlook improvement as the main driver, the IMF marked up its advanced economy growth estimate to 5.1 per cent from 4.3 per cent.

Forecasts for emerging market economies, while somewhat improved, took a back seat to their developed peers.

The fund’s outlook for EM economies rose by just 0.4 percentage point - half of the advanced economy mark-up - to 6.7 per cent from the view in January. “Multispeed recoveries are underway in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic policy support, and structural factors such as reliance on tourism,” the IMF said in its report summary.

The US economy this year will join China in regaining a level of gross domestic product that exceeds where it stood before the pandemic struck just over a year ago, the IMF said. China recaptured all of its lost growth by the end of 2020.

The IMF emphasised the high degree of uncertainty surrounding the outlook, and that improvements could easily be tripped up by many factors, with success against the pandemic topping the list.

“Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines can lead to a sharp downgrade,” said IMF Managing Director Kristalina Georgieva. Another big risk centres around accommodative policies.