(Source: IMF WEO April 2021)

IMF lifts world’s 2021 GDP growth forecast to 6%

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The International Monetary Fund (IMF) is projecting a stronger recovery for the world economy compared with its January forecast, with growth projected to be 6% this year and 4.4% 2022 after an estimated historic contraction of -3.3% in 2020. The new figure represents an upgrade of 0.5% for 2021 and 0.2% for 2022 from what it forecast in January.

The global lender in its latest World Economic Outlook (WEO) report released Tuesday (April 6) said that the upgrades in world growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizable upgrade for the United States that is expected to grow at 6.4% this year (up from 5.1% in January) – its fastest growth since 1984.

“Among advanced economies, the United States is expected to surpass its pre-Covid GDP level this year” IMF chief economist Gita Gopinath said. The organisation’s forecast for emerging and developing economies’ growth is 6.7% for 2021, with India expected to expand by as much as 12.5%.

The world’s second-largest economy, China will record 8.4% growth this year and 5.6% in 2022, the fund estimates. The 19 countries that share the euro currency will collectively expand 4.4% this year and 3.8% in 2022. Japan is expected to register 3.3% growth in 2021 and 2.5% in 2022.

The report also says that gains in poverty reduction have been reversed.  Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-Covid-19 projections.

“ Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” Gopinath added. Income inequality is also set to increase significantly.

“Within-country income inequality will likely increase because young workers and those with relatively lower skills remain more heavily affected in not only advanced but also emerging markets and developing economies,” Gopinath warned.

She predicted that “many of the jobs lost are unlikely to return.″ The report also said that “output losses have been particularly large for countries that rely on tourism and commodity exports and for those with limited policy space to respond.” The Washington-based institution said governments should continue to focus on “escaping the crisis.”

Of note, a faster recovery in the United States means U.S. interest rates could rise “in unexpected ways,” rattling financial markets and pulling investment out  emerging markets. Meanwhile, commodity prices are expected to firm up further in months ahead.