Let the good times roll!

Biggest boom in decades

,, Within-country income inequality will likely increase because young workers and those with relatively lower skills remain more heavily affected. Gita Gopinath, IMF chief economist

The International Monetary Fund (IMF) has lifted its global growth forecasts and now expects economic growth of 6 per cent for 2021 — the biggest boom since 1980.

In an optimistic new report the IMF said the path out of the pandemic was increasingly clear.

It upgraded its forecast for 2021 to 6 per cent from 5.5 per cent and its forecast for 2022 to 4.4 per cent from 4.2 per cent.

The rebound follows a global contraction of 3.3 per cent — the worst ever excluding times of world war.

In advanced economies, pent-up demand would drive growth based on savings from 2020, as vulnerable people get vaccinated and contactintensive industries resumed, the IMF said.

To some extent this reflects the more rapid slump and rebound New Zealand experienced in the second and third quarter of last year due to its success in eliminating Covid-19.

Most economists now expect the New Zealand economy to track sideways for some time with modest growth later this year and next.

The IMF also warned that economies dependent on tourism faced a tougher recovery outlook given the slow pace of normalisation of crossborder travel expected.

However strong global growth is likely to help New Zealand exporters, and demand and pricing for our major commodities remain strong.

Global trade volumes were forecast to grow 8.4 per cent this year, up from the 8.1 per cent gain the IMF expected in January.

Much of the IMF’s confidence is focused on the strength of the US recovery based on President Joe Biden’s plans for large-scale stimulus and investment in infrastructure.

Biden has already approved a stimulus package of US$1.9 trillion and is now moving to push through a US$2.3 trillion infrastructure spending programme.

The IMF has estimated growth of 5.1 per cent for advanced economies for 2021, with the United States expanding by 6.4 per cent.

It also upgraded its outlook for China’s growth from 8.1 per cent to 8.4 per cent.

“Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible,” IMF chief economist Gita Gopinath said in the latest World Economic Outlook report.

But she did warn of a divergence in growth between advanced and lesser-developed economies and widening inequality.

“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 said in the report.

“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,” she said.

“Policymakers would need to “limit long-term economic scarring” from the crisis and boost public investment.

In another report looking at fiscal stability the IMF warned about the unintended consequences of fiscal and monetary policy stimulus — including the risk of rising inflation.

It reiterated that policymakers should “gradually” scale back fiscal support and give “clear forward guidance” on monetary policy settings.

Meanwhile, speaking at a press conference, Gopinath expressed IMF support in principle for a US plan to establish global minimum tax rates.

The IMF was still assessing a proposal by US Treasurer Janet Yellen for a minimum rate of 28 per cent, she said.