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July 27, 2021

IMF presents World Economic Outlook July 2021 Update


Photo: International Monetary Fund Chief Economist Gita Gopinath presents the World Economic Outlook update. IMF Photo/Cory Hancock. July 27, 2021. Washington, D.C., United States. Image provided by & copyright © IMF.

Washington, DC., July 27, 2021 — The global economy is growing but widening gaps between advanced economies and many emerging markets and developing economies are a concern. The International Monetary Fund said that in its latest update of the World Economic Outlook on Tuesday.

Global growth is forecast at 6 percent for 2021, unchanged from the previous forecast in April. Still, the composition of that has changed, said the Fund’s Chief Economist Gita Gopinath, ahead of the report’s release.

“Global growth is projected to be 6 percent this year, which is unchanged from our April forecast. However, the composition has changed. We are upgrading growth for advanced economies, and that’s almost entirely offset by a downgrade for emerging markets and developing economies. Next year, we have upgraded growth to 4.9 percent, and that’s mainly driven by anticipated further financial support in the U.S.,” said Gopinath, the IMF’s chief economist.

These revisions reflect differences in pandemic developments as the delta variant takes over. Close to 40 percent of the population in advanced economies has been fully vaccinated, compared with just 11 percent in emerging market economies. That number is even lower still in low-income developing countries.

Aftershocks from the pandemic upheaval of last year pose unique policy challenges. Pent-up demand and supply chain bottlenecks are putting upward pressure on prices. Nonetheless, in most advanced economies, inflation is expected to subside to pre-pandemic ranges in 2022.

“One of the major fault lines remains the pandemic. In addition, we see newer virus variants far more transmissible, like the Delta variant that we see right now. In a world where vaccine access remains highly inequitable, that will have a big hit on the economic recovery. Another major risk and fault line is concerning financial conditions. Suppose, for instance, inflation in the U.S. is more persistent than we expected. In that case, that could lead to a faster tightening in monetary policy, which could then again disrupt financial market conditions. So, these are some of the major risks we are concerned about,” explained Gopinath.

The recovery is not assured until the pandemic is beaten back globally. However, concerted, well-directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries or one where divergences intensify, the poor get poorer, and social unrest and geopolitical tensions grow.

“First and foremost, the world needs to be fully vaccinated, and this requires multilateral action to make sure that sufficient vaccine doses are made available to developing countries. Second, individual governments will need to tailor their policy support to the stage of the crisis. They will have to do this by nesting their monetary policies in incredible medium-term fiscal frameworks. Third, in the case of monetary policy, central banks should look through transitory inflation movements. However, it’s crucial that they remain prepared and strongly communicate what they will do if it turns out that inflation goes up even higher and is much more persistent than expected.” said Gopinath.

Source: IMF

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Edited & Posted by the Editor | 3:38 PM | Link to this Post

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