Transcript of the World Economic Outlook Update Press Briefing
IMF News, January 28, 2021
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- Published: January 28, 2021
Major findings and headline projections
- Global growth for 2021 is projected to be 5.5 percent, which is 0.3 percentage points above the October forecast.
- Global growth is expected to moderate to 4.2 percent in 2022.
- The projected cumulative output loss over 2020 to 2025, relative to pre-pandemic projected levels, is 22 trillion dollars.
- The 2020 global contraction is estimated at -3.5 percent (revised from the earlier October projection of -4.4 percent and from the April projection of -3.3 percent).
- Over 150 economies are expected to have per capita incomes below their 2019 levels in 2021; this is expected to decline to around 110 economies in 2022.
- Over 50 percent of emerging market and developing economies that were converging towards advanced economies per capita income are now diverging over the three years between 2020 and 2022.
- Over 90 million individuals are expected to enter extreme poverty over 2021.
Risks, uncertainty, and scenarios
- The outlook depends critically on the race between a mutating virus and vaccines, and on the ability of policies to sustain support until the pandemic ends.
- Upside conditional factors: greater success on vaccinations (especially rollouts) and additional policy support could improve outcomes.
- Downside conditional factors: slowdown in vaccine rollouts, premature withdrawal of policy support, and a mutating virus could lead to worse outcomes, including tightening financial conditions when debt is at record highs in many countries.
- If downside risks are realized, rising bankruptcies could strain fragile banking systems and increase non-performing loans.
Distributional impacts and scarring
- Recovery is partial and uneven: workers with less education, youth, women, and informally employed workers have suffered disproportionate income losses.
- Advanced economies are generally expected to recover faster than many emerging market and developing economies, reversing some progress toward convergence made over the last decade.
- Within-country divergence is pronounced; the crisis risks longer-run scarring unless addressed with policy.
Country and regional notes (selected)
- China:
- Estimated growth in 2020: 2.3 percent.
- Projected growth in 2021: 8.1 percent.
- China returned to its pre-pandemic projected level in the fourth quarter of 2020.
- Drivers: successful containment, fiscal and monetary support, rebound in exports, public infrastructure spending, liquidity and credit support.
- United States:
- IMF preliminary estimate for a proposed 1.9 trillion dollars rescue plan: could raise U.S. output by 5 percent over three years and increase growth this year by 1 and a quarter percent.
- Euro area:
- Recovery lagging relative to the U.S.; more severe public health restrictions and structural factors (tourism dependence, prevalence of SMEs) contribute to slower rebound.
- Japan:
- Projected growth rates mentioned in briefing: 3.1 percent in 2021 and 2.4 percent in 2022 (noted as lower than U.S. or euro-area partly due to low potential growth).
- India:
- Fiscal year contraction around -8 percent for 2020–2021.
- Question referenced a projection of 11.5 percent growth for 2021 (discussion emphasized a strong bounce driven by faster-than-expected mobility and activity recovery, while cumulative output by end-2022 remains about 9 percent below pre-pandemic projected level).
- United Kingdom:
- Downgraded for 2020 and again in 2021 due to subsequent waves and more prolonged restrictions; Brexit estimated to reduce quarter-on-quarter growth in Q1 by about 1 percent of GDP.
- Latin America:
- Particularly hard hit by cases and deaths per million; recoveries vary across countries (noted heterogeneity between Brazil and Mexico); positive spillovers possible from global and U.S. recovery, but high regional risks persist.
- MENA:
- Oil exporters hit more by pandemic; non-oil activity has returned strongly in some economies (example: Saudi Arabia); fragile states and tourism-dependent economies face severe challenges.
- Mexico:
- Two-speed recovery: external demand and exports driving growth while domestic demand remains subdued; cumulative output still below 2019 levels, with return to pre-COVID levels only by 2022 or later.
- Africa:
- New variants identified in some African countries where vaccine access is weak; unequal global vaccine access is flagged as a major concern.
Key numerical items (preserved as reported)
- Global growth 2021: 5.5 percent.
- Upgrade vs October forecast: 0.3 percentage points.
- Global growth 2022: 4.2 percent.
- Global COVID-19 deaths doubled to over two million in three months (period referenced in briefing).
- 2020 global contraction: -3.5 percent (October projection -4.4 percent; April projection -3.3 percent).
- Cumulative output loss 2020–2025: 22 trillion dollars.
- Economies with per capita incomes below 2019 levels in 2021: over 150 economies; in 2022: around 110 economies.
- Over 50 percent of emerging market and developing economies now diverging across 2020–2022.
- Over 90 million individuals expected to enter extreme poverty over 2021.
- Oil prices recovered by about 20 percent from 2020 lows and are "around 50 dollars" per barrel (phrasing preserved).
- China 2020 growth: 2.3 percent; China 2021 projection: 8.1 percent.
- Japan projections cited: 3.1 percent in 2021 and 2.4 percent in 2022.
- India fiscal-year contraction: around -8 percent; question cited projection of 11.5 percent growth for India in 2021.
- U.S. rescue plan headline: 1.9 trillion dollars; IMF preliminary estimate: U.S. output up by 5 percent over three years; increase in growth this year by 1 and a quarter percent.
- IMF estimate of benefit from more rapid global progress ending the health crisis: 9 trillion dollars cumulatively to the global economy between 2020 and 2025, with benefits for all countries including advanced economies of around 4 trillion dollars.
Policy recommendations and priorities
- Vaccination and global access
- Accelerate rollouts and ensure global, equitable access to vaccines.
- Ramp up production, bolster funding for the COVAX facility, and finance logistics for vaccine delivery and uptake.
- Rationale: faster resolution of the health crisis yields large global economic benefits (IMF estimate: 9 trillion dollars cumulative benefit 2020–2025; advanced-economy benefits around 4 trillion dollars).
- Targeted lifelines and fiscal support
- Provide well-targeted lifelines to households and firms where the virus is surging to maintain livelihoods and prevent bankruptcies of otherwise viable firms.
- Where fiscal space is limited, prioritize spending for health and transfers to the poor.
- Gradually roll back lifelines once infections decline and immunity broadens to enable worker mobility and avoid creating "zombie firms."
- Reallocate freed resources to priorities that strengthen recoveries: education spending, digitalization, green investments.
- A synchronized green public investment push by largest fiscally able economies can boost effectiveness and cross-border spillovers.
- Financial stability and monetary policy
- Keep monetary policy accommodative where inflation is not at risk, while monitoring risks from historically low interest rates and easy financial conditions.
- Prepare for an increase in bankruptcies and rising non-performing loans when pandemic measures are withdrawn; establish special out-of-court restructuring frameworks.
- Debt sustainability and international support
- Maintain medium-term fiscal frameworks to ensure debt remains sustainable as growth returns and low interest rates help stabilize debt in many countries.
- International community to provide grants, concessional aid, debt relief, and, where needed, debt restructuring to poorer nations with constrained financing.
- Emphasized moral and economic imperative for richer countries to fund vaccine access and logistics globally.
Financial and trade observations
- Merchandise trade has returned to pre-pandemic levels, faster than after the global financial crisis.
- Services trade remains weak.
- Supply constraints (e.g., metals) have contributed to higher commodity prices; headline inflation effects are more visible than in core inflation and may be transitory given global slack.
Closing message from the briefing
- The world economy is projected to return to positive growth in 2021 after the severe 2020 contraction, but outcomes are highly uncertain and hinge on vaccine effectiveness, rollouts, virus mutations, and policy support.
- Arresting and reversing divergence across and within countries requires broad and equitable access to vaccines, stronger logistics and funding, and international financial support to vulnerable countries.
Transcript of the World Economic Outlook Update Press Briefing — January 28, 2021, IMF Communications Department