High-infectious variants threaten to derail recovery

LONDON. – The global economy is increasingly divided between vaccine haves and have nots, the world’s lender of last resort, the International Monetary Fund, said yesterday.

The outlook for the UK economy has improved since April, but Britain and other wealthy economies are not immune from the economic toll the Covid-19 pandemic is taking elsewhere, the IMF warned.

Leaving so many people unvaccinated around the world means the risk of fresh variants – that might prove more infectious or escape vaccines – is heightened.

“The emergence of highly infectious virus variants could derail the recovery and wipe out US$4.5 trillion cumulatively from global GDP by 2025,” wrote Gita Gopinath, IMF chief economist, in a blog published alongside the lender’s latest World Economic Outlook report.

“Multilateral action is needed to ensure rapid, worldwide access to vaccines, diagnostics, and therapeutics. This would save countless lives, prevent new variants from emerging, and add trillions of dollars to global economic growth,” Gopinath added.

Even with best efforts to share vaccines more equally around the world, high global infection rates were a risk in the short term, the IMF noted. This could continue to limit business travel and dampen the recovery in global services’ trade, a problem that could impact not just less developed countries but also some advanced economies.

The impact of this will likely be milder in countries such as the UK and Canada, with relatively high vaccination rates, but could take a serious toll in other G20 nations, such as India, the IMF warned.

Some economists and central bank policymakers have expressed concerns about the risks of higher inflation as countries adjust to lifting of pandemic-related restrictions. However, this was not the time for central banks to start raising interest rates, the IMF said. Many factors driving inflation, such as the pandemic’s disruption of supply chains, may prove temporary.

“Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics,” the report said. Wage costs, which can be a driver for inflation were “broadly stable” this year, according to data from a range of wealthier countries.

Gopinath said: “Our latest global growth forecast of 6 percent for 2021 is unchanged from the previous outlook, but the composition has changed.

“Growth prospects for advanced economies this year have improved by 0.5 percentage point, but this is offset exactly by a downward revision for emerging market and developing economies driven by a significant downgrade for emerging Asia,” she added. – The Independent