IMF sees a stronger starting point for the 2021-22 global forecast
The International Monetary Fund (IMF) sees a stronger starting point for the 2021-22 global outlook than envisaged in the previous forecast, with stronger-than-expected recovery on average across regions in the second half of 2020, expectations of vaccine-powered strengthening of activity later in 2021, and further policy support to the global economy.
After an estimated 3.5 percent contraction in 2020, the global economy is projected to grow 5.5 percent in 2021 and 4.2 percent in 2022, according to the update of World Economic Outlook released by IMF on Tuesday.
Global trade is forecast to grow about 8 percent in 2021 before moderating to 6 percent in 2022, according to IMF.
Although surging infections in late 2020, renewed lockdowns, logistical problems with vaccine distribution, and uncertainty about take-up will soften momentum in early 2021, it is expected to give way to rising momentum in the second quarter as vaccines become more readily available.
The strength of the projected recovery varies across countries, depending on the severity of the health crisis, the extent of domestic disruptions to activity, the exposure to cross-border spillovers, and the effectiveness of policy support to limit persistent damage.
A strong recovery in China is facilitated by effective containment measures, a forceful public investment response, and central bank liquidity support.
Oil exporters and tourism-based economies will face particularly difficult prospects considering the expected slow normalization of cross-border travel and the subdued outlook for oil prices.
Additional fiscal policy support is set to boost activity in some advanced economies like the U.S. and Japan with favorable spillovers to trading partners, but most countries are expected to experience lower deficits in 2021.
Major central banks are assumed to maintain their current policy rate settings throughout the forecast horizon to the end of 2022. Financial conditions are thus expected to remain broadly at current levels for advanced economies while gradually improving for developing economies.
'Policy played a very important role for China's recovery'
"I think policy played a very important role in China's recovery. And the recovery is remarkable in the sense that it has been ahead of other economies of China's size," said Helge Berger, IMF's China mission chief, and assistant director in the Asia and Pacific Department.
Berger affirmed the efforts China made in combating the COVID-19 pandemic and their positive impact on economic recovery.
"This is why we think we do have a recovery that will continue into 2021, coming strong out of especially the fourth quarter last year," he added.
Berger also cautioned to look at China's economic recovery below the headlines. "While strong overall, it is still heavily relying on public support. It's not balanced," he said, citing the fact that the private consumption still contributed weaker to the GDP compared with other sectors.
However, he is confident about China's ongoing transition under the dual-circulation development pattern to address the potential risks.
"[In] longer term, there's a whole agenda of reforms that I think can support the strategy towards more balanced, high-quality growth… We know that structural reforms have not stopped during the pandemic. We have seen progress in important areas, especially opening up domestic financial services markets to foreign firms. This is good news and worth stressing," he said.