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The pandemic will leave some lasting damage to advanced economies, the IMF says



The most advanced economies will emerge from the coronavirus crisis with little lasting damage thanks to the relatively rapid roll-out of vaccines and their willingness to sharply increase public spending and loans, according to the IMF.

The likely success of managing the economic downturn from the pandemic will not be replicated in emerging economies, but underscores the difference in economic wealth, the fund said.

Even with different fortunes, the global economic outlook had improved especially since the fund’s earlier forecasts at the beginning of this year, it said on Tuesday, revising its expectations for almost all countries.

The global economy is expected to enjoy two years of rapid growth in 2021

and 2022 of 6 percent and 4.4 percent, according to the IMF forecast. It also revised the estimated scale of declining global production due to the pandemic last year.

The fund’s projections suggest that the economic legacy of the pandemic will not be anything like the 2008-09 financial crisis, which left countries nurturing a hangover with weak growth for a decade thereafter.

Bar graph of medium-term losses (% of GDP) showing advanced economies that will emerge from Covid-19 with much less damage than the 2008-09 financial crisis

In 2024, advanced economies will produce approx. 1 percent less production than their pre-pandemic growth path, according to IMF forecasts. On the other hand, after the recession of 2008-09, they suffered a gap of more than 10 percent.

Overall, the economic impact of the pandemic is “much less than [2008-09] global financial crisis, ”said Gita Gopinath, the fund’s chief economist, adding that advanced economies“ get very little [economic] scarring and [in] USA [there is] in fact no scarring ”.

The IMF revised its forecast for US growth in 2021 up by 1.3 percentage points from its previous projections in January. Canada’s projection rose 1.4 percentage points, Italy rose 1.2 percentage points and the United Kingdom by 0.8 percentage points.

The fund was particularly bullish on the prospect of a rapid recovery in the US without inflationary pressures. Gopinath said: “The United States is really the only major economy if [economic output] for 2022 is expected to exceed what it would have been in the absence of this pandemic. ”

However, the IMF noted that the economic and social pain of the crisis had hit some countries and groups of people in countries much harder than others. Parts of Europe suffering from a new wave of coronavirus are likely to take longer to recover, but the IMF was optimistic that the EU would catch up with other advanced economies such as the US in a few years.

By 2024, the IMF expects that even many of these lagging European economies have almost returned to their pre-pandemic growth path.

This is largely due to advanced nations and their companies having proven much more resilient to lockdowns than the fund had previously expected.

Bar chart of GDP growth in 2021 according to forecast (%), showing the IMF, revises the global economic outlook upwards

The IMF, on the other hand, expects the crisis to be a long-term drag on new economies, with economic output in 2024, with the exception of China, expected to be almost 8 percent below the level the IMF had expected before the pandemic.

Nations most vulnerable to a sluggish recovery are emerging economies with poor access to Covid-19 vaccines, those with weak public finances and those heavily dependent on tourism, the IMF said.

Hit on new economies in the short term will be exacerbated by the disruption of schooling during the pandemic, which has taken what the fund described as a “serious toll” on education in poor countries because they have only limited capacity to provide schooling online .

Gopinath said there was little cause for immediate concern over unprecedented levels of fiscal stimulus on both sides of the Atlantic that led to a rise in inflation because global forces are likely to keep a lid on price increases and there is still nothing signs that central banks or governments would lose control.

But it highlighted the risk that the United States might lead the world to tighten monetary policy quickly if inflationary pressures rose sharply. This can hit new markets particularly hard by bringing capital flight back to the developed economies.

However, there is no sign so far that US President Joe Biden’s $ 1.9 tonne stimulus has destabilized international markets, Gopinath said, marking it as an encouraging sign.

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