STOCK Gita Gopinath
Gita Gopinath, Economic Counsellor and Director of Research of IMF. Image Credit: AP

Dubai: The global economic recovery continues but the momentum has weakened and hobbled by the pandemic, according to the latest World Economic Outlook Report issued by the IMF.

Compared to the July forecast, global growth for 2021 has been revised down to 5.9 per cent from 6 per cent and is unchanged for 2022 at 4.9 per cent. This modest headline revision, however, masks large downgrades for some countries.

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“Pandemic outbreaks in critical links of global supply chains have resulted in longer-than-expected supply disruptions, further feeding inflation in many countries," said Gita Gopinath, Economic Counsellor and Director of Research of IMF. "Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,”

The downward revision of GDP reflects a downgrade for advanced economies — in part due to supply disruptions —and for low-income developing countries. Employment is generally expected to continue lagging the recovery in output. Beyond 2022, growth is projected to moderate to about 3.3 per cent over the medium term.

Economic recovery gap
Economic recovery gap Image Credit: IMF's World Economic Outlook report

Advanced economies

Advanced economy output is forecast to exceed pre-pandemic medium-term projections, largely reflecting sizable anticipated further policy support in the US. The group that includes the US, Eurozone, UK, Canada and Japan are projected to grow 5.2 per cent this year with 4.5 per cent for 2022.

While the US is forecast to grow 6 per cent and 5.2 2 per cent respectively in 2021 and 2022 the Eurozone and the UK are projected to grow at 5 per cent and 6.8 per cent, respectively in 2021.

Emerging economies

The IMF has kept the economic outlook of key emerging markets economies such as China, India and Russia unchanged. While China’s GDP is projected to grow 8 per cent in 2021 and moderate to 5.6 per cent in 2022, India’s is forecast at 9.5 per cent and 8.5 per cent for 2021 and 2022. Russia’s growth outlook has marginally improved this year to 4.7 per cent largely driven by rising oil prices.

The IMF anticipates persistent output losses in the emerging market and developing economy group due to slower vaccine rollouts and generally less policy support compared to advanced economies Rising inflation reflects pandemic-related supply-demand mismatches and higher commodity prices compared to their low base from a year ago.

Commodity exporters

The IMF has forecast brighter growth outlook for commodity exporting countries, especially oil exporters. For the Middle East and North Africa region in which world’s leading oil exporters are located, the IMF has forecast an overall growth of 4.1 per cent for both 2021 and 2022.

Low-income economies

The outlook for the low-income developing country group has darkened due to worsening pandemic dynamics. Speeding up the vaccination remains the top policy priority, while continuing the push for widespread testing and investing in therapeutics.

Policy recommendations

The IMF said health care-related spending remains the priority. As the pandemic persists and fiscal space is limited in some countries, funding lifelines will need to become increasingly targeted to the worst affected and provide retraining and support for reallocation.

On monetary policy, it said although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected or risks of rising inflation become tangible.

“The dangerous divergence in economic prospects across countries remains a major concern," said Gopinath. "Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 per cent in 2024. By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 per cent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards,”