IMF slashes India’s growth forecast as infections surge
ESTIMATES FOR UK AND US RAISED AS ‘GLOBAL DISPARITIES WIDEN’
THE global economy will expand by six per cent this year, but disparities between nations are widening as advanced economies accelerate while developing countries fall behind, the IMF said on Tuesday (27).
While the forecast for global growth is unchanged from the previous estimate in April, the United States is projected to see faster seven per cent growth thanks to massive government spending and widespread Covid-19 vaccinations, while the IMF slashed the forecast for India, which is facing a resurgence of infections. Its growth forecast was slashed three points to 9.5 per cent, and even China was trimmed by three-tenths of a percentage point to 8.1 per cent.
“Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs,” the International Monetary Fund said in its updated
World Economic Outlook, warning of the danger to the economy if new virus variants are allowed to take hold. The recovery “is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere,” the report said.
And while the recent inflation spike is the result of the unprecedented and uneven turnaround from the pandemic and should prove temporary, the IMF raised the possibility that price increases could become “persistent”.
The Washington-based crisis lender once again stressed that “the immediate priority is to deploy vaccines equitably worldwide”.
Advanced nations have vaccinated nearly
40 per cent of the population, compared to barely 10 per cent in emerging markets and even fewer in low-income countries, the report said. “The emergence of highly infectious virus variants could derail the recovery and wipe out $4.5 trillion (£3.24tn) cumulatively from global GDP by 2025,” IMF chief economist Gita Gopinath warned in a blog post.
More than half of that lost wealth would come from rich nations in the event new variants spread unchecked. And this is not just a “tail risk” that is highly unlikely, “This is a realistic downside risk,” said Petya Koeva-Brooks, deputy director of the IMF Research Department.
The IMF raised the 2021 estimates for Canada and Britain to 6.3 per cent and seven per cent, respectively, while the euro area GDP is expected to expand 4.6 per cent, just slightly higher than the April WEO.
Although some emerging market nations like Brazil and Mexico are poised to show stronger growth this year, developing nations as a group are lagging and
struggling to return to their prepandemic levels. “I would say we’re more worried than we were back in April,” Koeva-Brooks said.
The IMF is pushing for a $50 billion (£36bn) plan that offers a “feasible cost to end the pandemic” by distributing vaccines and addressing immediate needs in lower income countries.
Rising prices are another factor weighing on the global recovery, and pose a challenge to policymakers. “The unprecedented convulsion in the global economy last year continues to trigger aftershocks,” the IMF said, pointing to a shortage of computer chips and a lack of shipping containers where they are needed, which has delayed deliveries of materials.
Koeva-Brooks said some bottlenecks and price jumps were to be expected and should be temporary, but IMF economists acknowledge that higher inflation could become entrenched.
Because the situation is so unique and “we’ve never seen how to reopen economies after a crisis like this one,” it is difficult to forecast, she said.