## Divergent Recoveries Amid High Uncertainty ## Source details **Canonical URL:** [Divergent Recoveries Amid High Uncertainty](https://www.imf.org/-/media/files/oap/oap-home/2021/weo-ch-1-oap-final.pdf) ## Other formats - [Markdown version](/-/media/files/oap/oap-home/2021/weo-ch-1-oap-final.pdf.md) - [Structured JSON version](/-/media/files/oap/oap-home/2021/weo-ch-1-oap-final.pdf.json) --- ### Outlook - Vaccines, policy support, and adaptation to new ways of working are central to the recovery. - COVID-19 recessions likely to leave smaller scars than the 2008 financial crisis, but emerging market and developing economies (EMDEs) are expected to suffer larger medium-term losses. - Drivers of emerging divergences: access to vaccines and therapies, policy support, and structural characteristics. - Divergences occur within and across countries: sectoral (manufacturing versus services) and rising inequality (opportunity and income). - Policy guidance: tailor policies to the stage of the pandemic, strength of the recovery, and structural characteristics; strong international cooperation is vital. - Escaping the crisis: prioritize health care spending and provide well-targeted support. - Safeguarding the recovery: limit long-term scarring without sacrificing efficiency. - Investing in the future: boost productivity, ensure equitable gains, improve policy frameworks, and address climate change. ### Growth projections: Advanced economies (percent change from a year earlier) - World Economic Outlook, April 2021 projections (selected figures by region/economy): - 2020 growth: World -3.3; Advanced economies -4.7; U.S. -3.5; Euro Area -6.6; Japan -4.8; U.K. -9.9; Canada -5.4; Other Advanced Asia -1.3. - Revision from Jan. 2021 (2020): World 0.2; Advanced economies 0.2; U.S. -0.1; Euro Area 0.6; Japan 0.3; U.K. 0.1; Canada 0.1; Other Advanced Asia 0.2. - 2021 projections: World 6.0; Advanced economies 5.1; U.S. 6.4; Euro Area 4.4; Japan 4.3; U.K. 3.3; Canada 5.3; Other Advanced Asia 5.0. - Revision from Jan. 2021 (2021): World 0.5; Advanced economies 0.8; U.S. 1.3; Euro Area 0.2; Japan 0.2; U.K. 0.8; Canada 1.4; Other Advanced Asia 0.7. - 2022 projections: World 4.4; Advanced economies 3.6; U.S. 3.5; Euro Area 3.8; Japan 2.5; U.K. 5.1; Canada 4.7; Other Advanced Asia 3.0. - Revision from Jan. 2021 (2022): World 0.2; Advanced economies 0.5; U.S. 1.0; Euro Area 0.2; Japan 0.1; U.K. 0.1; Canada 0.6; Other Advanced Asia 0.1. ### Growth projections: Emerging markets and developing economies (percent change from a year earlier) - World Economic Outlook, April 2021 projections (selected figures): - 2020 growth: Emerging Market and Developing Economies -2.2; China 2.3; India -8.0; Brazil -4.1; Russia -3.1; Commodity Exporting Economies -3.9; Low Income Developing Countries 0.0. - Revision from Jan. 2021 (2020): Emerging Market and Developing Economies 0.2; China 0.2; India 0.0; Brazil 0.0; Russia 0.4; Commodity Exporting Economies 0.5; Low Income Developing Countries 0.8. - 2021 projections: Emerging Market and Developing Economies 6.0; China 6.7; India 8.4; Brazil 1.2; Russia 3.7; Commodity Exporting Economies 3.8; Low Income Developing Countries 4.1. - Revision from Jan. 2021 (2021): Emerging Market and Developing Economies 0.5; China 0.4; India 0.3; Brazil 1.0; Russia 0.0; Commodity Exporting Economies 0.8; Low Income Developing Countries 0.3; (one entry) -0.8. - 2022 projections: Emerging Market and Developing Economies 4.4; China 5.0; India 5.6; Brazil 6.9; Russia 2.6; Commodity Exporting Economies 3.8; Low Income Developing Countries 3.8; (one entry) 5.2. - Revision from Jan. 2021 (2022): Emerging Market and Developing Economies 0.2; China 0.0; India 0.0; Brazil 0.1; Russia 0.0; Commodity Exporting Economies -0.1; Low Income Developing Countries -0.2; (one entry) -0.3. ### Fiscal, monetary, and pandemic dynamics shaping recovery speeds - Fiscal support and policy: - G7 fiscal support in percent of G7 GDP: GFC, 2008–10: 4%; Global lockdown (GL) as of March 2021: 19%. - Fiscal support in response to COVID-19 measured in percent of 2020 GDP (above-the-line measures include the U.S. American Recovery Plan). - Central bank support reported as balance sheet size in $ trillions; “Other G10 central banks” includes Bank of England, Bank of Canada, Swiss National Bank, and Sveriges Riksbank. - Estimated impact of policies on 2020 global real GDP growth: - With policy support versus without policy support; charted impacts show substantive mitigation of GDP decline when policies applied. - Differential progress in beating back the pandemic reflects variation in new confirmed cases (daily averages as of May 3) and vaccine deployment (total vaccines administered, doses per hundred population, as of 5/3/2021). - Confirmed vaccine procurement by percent of population shows projected coverage categories “By the end of June 2021” and “By the end of December 2021”, with remaining “Unknown”; people vaccinated (at least one shot) latest observation: May 3, 2021 (right scale). ### Divergent recoveries and medium-term damage - Medium-Term GDP Losses Relative to Pre-COVID-19, by region: - Bars show the difference in real output four years after the crisis and anticipated output for the same period prior to the crisis for indicated regional groups. - Regions with larger projected losses include several EM regions; China and some advanced economies show smaller or negligible losses in this framing. - Higher inequality within countries is expected: - Income inequality measured by Gini coefficients shows variation across All economies, Advanced economies, Emerging market economies, and Low-income developing countries. - Global education losses due to the COVID-19 pandemic measured by average missed days of instruction in 2020. ### Risks and uncertainty - Near-term risks are balanced, tilted to the upside further out if: - Vaccine production and distribution proceed faster than assumed. - Policy support provides an effective bridge until vaccine-powered normalization is underway. - Faster productivity growth is engendered by changes in production, distribution, and payment systems. - Rising confidence leads to more front-loaded spending and faster deployment of excess savings. - Downside risks include: - Delays in vaccine rollout, recurring outbreaks, prolonged pandemic. - Tightening financial conditions, liquidity shortfalls, and insolvencies. - Intensifying unrest, geopolitical tensions, trade policy uncertainty, and technology frictions. - Weather-related natural disasters, which have increased in intensity and frequency. - High uncertainty on the path of the pandemic: a race between rapid mutations and access to vaccines. ### Financial spillovers, inflation, and insolvency risks - Prospects of divergent policy stances and financial spillovers are reflected in policy rate expectations and ten-year government bond yields across major economies (United States, United Kingdom, Euro area, Japan, Germany, Italy). - Rising commodity prices and generally supportive financial conditions documented in commodity price indices (deflated using US consumer price index; 2014 = 100) and equity market indices (2017 = 100). - Bankruptcies have been contained so far, but risk rising if support is withdrawn too quickly: - Bankruptcies indexed to last prerecession quarter = 100 show sharper increases in some recessions; fiscal stance changes in 2019–21 shown as change in structural primary fiscal balance, percent of potential GDP. ### Incoming-data considerations and activity indicators - Manufacturing rebound continues, accompanied by strong merchandise trade: - Global activity indicators include industrial production, manufacturing PMI new orders, services PMI new business, and monthly world trade volumes (2018 = 100, seasonally adjusted). - Global imports contributions are broken down by types of goods and regions (cars, consumer goods, capital goods, industrial supplies, total excluding petroleum, and other goods). ### Policy priorities: near-term and medium-term - Near-term priorities: - Enhance multilateral cooperation. - Support health care systems, including funding for vaccine. - Provide financial support for constrained countries. - National-level policies tailored to pandemic stage: - Limit damage where pandemic is accelerating: health care spending plus targeted measures to cushion income losses. - Support recovery where reopening is underway: calibrate unwinding of crisis response measures, facilitate resource reallocation to growing sectors, and provide support as possible. - Remedial measures to reverse setbacks to human capital accumulation. - Create room to accommodate elevated spending on crisis countermeasures. - Policies to address medium-term challenges: - Effective multilateral cooperation: - Address trade and technology tensions and protect critical supply chains. - Collectively implement climate change mitigation commitments. - National-level policies: - Counteract slowing productivity growth: repair balance sheets; dispose of distressed debt; reduce barriers to entry and labor market rigidities; ensure small firms can compete on a level playing field. - Make gains more equitable: strengthen social assistance and insurance; invest to boost re-employment prospects for displaced workers. - Facilitate new growth opportunities, including to speed the transition to a low-carbon economy. - Boost human capital accumulation. --- _Source: https://www.imf.org/-/media/files/oap/oap-home/2021/weo-ch-1-oap-final.pdf_