Advanced economies are on track to grow by 5.2 percent this year, down by 0.4 percentage point from July's forecast, which reflects more difficult near-term prospects, in part due to supply disruptions.
by Xiong Maoling, Gao Pan, Hu Yousong
WASHINGTON, Oct. 13 (Xinhua) -- The International Monetary Fund (IMF) on Tuesday slightly revised down its global economic forecast amid the Delta variant-fueled COVID-19 surge, highlighting the "great vaccine divide," supply bottlenecks and inflation risks.
"The global recovery continues but momentum has weakened, hobbled by the pandemic," IMF Chief Economist Gita Gopinath told a virtual press conference during the annual meetings of the IMF and the World Bank Group.
In its newly released World Economic Outlook, the IMF projected the global economy to grow by 5.9 percent in 2021, down by 0.1 percentage points from July's forecast, while noting that the "modest headline revision" for the global economy "masks large downgrades" for some countries.
GREAT VACCINE DIVIDE
Noting that overall risks to economic prospects have increased and policy trade-offs have become "more complex," Gopinath said the outlook for the low-income developing countries, in particular, has "darkened considerably" due to worsening pandemic dynamics.
Low-income developing countries are on track to grow by 3.0 percent this year, down 0.9 percentage point from July's forecast, the report showed.
Stressing that a "dangerous divergence" in economic prospects across countries remains a major concern, Gopinath said these divergences are a consequence of the "great vaccine divide" and large disparities in policy support.
"We are very concerned (about the vaccine divide) and we are doing everything that we can to make the case to be clear on the numbers, which are troubling," Petya Koeva Brooks, deputy director of the IMF's Research Department, told Xinhua in a remote video interview Tuesday.
"About 60 percent of the population in advanced economies is fully vaccinated and about a third in emerging markets, whereas the corresponding number for low income countries is below five percent of the population," Brooks said.
The IMF urged the global community to step up efforts to ensure equitable vaccine access for every country, overcome vaccine hesitancy where there is adequate supply, and secure better economic prospects for all.
Recent pledges by China, the Group of Seven industrialized nations, and other countries in that direction are "welcome" steps, though donations should be accelerated to rapidly fulfill the commitments, according to the report.
"I think there have been pledges of surplus vaccines being shared and such. I think the logistical side of things perhaps has been lagging," Brooks said, adding that it's important to make sure that these donation pledges materialize.
The IMF official also encouraged countries to take "complimentary" measures, including therapeutics, testing and contact tracing, noting that the multilateral lender has called on policymakers to raise 20 billion dollars in grants to be used for low-income countries.
The latest report showed that advanced economies are on track to grow by 5.2 percent this year, down by 0.4 percentage point from July's forecast, which reflects more difficult near-term prospects, in part due to supply disruptions.
The United States and the euro area are projected to see economic growth of 6.0 percent and 5.0 percent respectively.
"We've seen the downgrades in the U.S., in Japan, in Germany, in Canada, and the common threat in all of this has been the supply bottlenecks," Brooks said.
The IMF baseline projection showed that supply bottlenecks are expected to fade going into the second half of 2022, the IMF official noted, adding that there are "significant risks," as "we are in uncharted territory."
While investors still expect recent price pressures to moderate and then gradually subside, they have also highlighted the possibility that supply chain disruptions and shortages of labor and materials may be "more persistent than currently anticipated," leading to an unmooring of inflation expectations, according to the IMF's Global Financial Stability Report released Tuesday.
Global central banks are going to face tough trade-offs between supporting the economic recovery, tackling inflation and maintaining financial stability as inflation prospects are highly uncertain, Tobias Adrian, financial counselor and director of the IMF's Monetary and Capital Markets Department, told Xinhua in a recent video interview.
Looking ahead, the IMF urged central banks to provide "clear guidance" about the future stance of monetary policy to avoid an unwarranted tightening of financial conditions and minimize the risk of market volatility.
The multilateral lender projects that headline inflation will likely return to pre-pandemic levels by mid-2022 for the group of advanced economies and emerging and developing economies. There is, however, considerable heterogeneity across countries with upside risks for the United States, Britain, and some emerging market and developing economies.
Adrian warned that the U.S. Federal Reserve's plan to taper its asset purchase program could bring an increase in interest rates and the widening of credit spreads, which could reverse capital flows into emerging markets.
"In our assessment, good communication around the tapering is important, but of course the pace of tapering is also extremely important," Adrian added.
Emerging market and developing economies are projected to grow by 6.4 percent in 2021, up by 0.1 percentage points from July's forecast, which is in part due to the upgraded projections for some commodity exporters on the back of rising commodity prices, the report said.
The Chinese economy, meanwhile, is on track to grow by 8.0 percent this year, down by 0.1 percentage points from July's forecast, the report showed, noting that the slight downward revision reflects stronger-than-anticipated scaling back of public investment.
"The downgrade does reflect mostly the tighter than previously anticipated settings of macroeconomic policies, as well as the outbreak of COVID, which happened in the summer," Brooks said. "On the other side, though, that is partly offset by the better than expected data in the second quarter."
In response to a question from Xinhua, Gopinath said at the virtual press conference that the IMF is aware that China has formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Noting the high-quality nature of the trade agreement, the IMF chief economist said she believes "it would be good for the world" to have more countries join it.