Transcript of April 2021 World Economic Outlook Press Briefing

April 6, 2021



Gita Gopinath, Chief Economist and Director of the Research Department, IMF

Petya Kovea-Brooks, Deputy Director, Research Department, IMF

Malhar Shyam Nabar, Division Chief, Research Department, IMF

Moderator: Raphael Anspach, Senior Communications officer, Communications Department, IMF


Raphael Anspach: Good morning and welcome to the International Monetary Fund's press conference on the April 2021 World Economic Outlook. Delighted that you could join us. We hope that you are doing well and staying safe as the pandemic continues to affect us all. I'm Raphael Anspach with the Communications Department, and I'm happy to be joined by my colleagues of the research department to present the report and answer your questions. Gita Gopinath. she's the economic counselor of the IMF and the director of the IMF Research Department, Petya Kova Brooks, deputy director of the IMF's research department and Malhar Nabar Division Chief of the research department at the IMF.

Gita will start us off with some introductory remarks and then we'll be happy to turn to your questions. With that Gita, the floor is yours.

Gita Gopinath: Thank you, Raphael, and welcome to this April World Economic Outlook. It is one year into the Covid-19 pandemic, and the global community still confronts extreme social and economic strain as a human toll rises and millions remain unemployed.

Yet even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible. Thanks to the ingenuity of the scientific community, hundreds and millions of people are being vaccinated, and this is expected to power recoveries in many countries later this year. Economies also continue to adapt to new ways of working, despite reduced mobility, leading to a stronger than anticipated rebound across regions. Additional fiscal support in large economies, particularly the United States, has further improved the outlook. We are now projecting a stronger recovery for the global economy compared with our January forecast, with growth projected to be 6 percent in 2021 and 4.4 percent in 2022 after an estimated historic contraction of -3.3 percent in 2020. Nonetheless, the future presents daunting challenges. The pandemic is yet to be defeated and virus cases are accelerating in many countries. Recoveries are also diverging dangerously across and within countries as economies with slower vaccine roll out, more limited policy support and more reliant on tourism do less well. The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizable upgrade for the United States that is expected to grow at 6.4 percent this year. Now, this makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.

Other advanced economies, including the euro area, will also rebound this year, but at a slower pace among emerging markets and developing economies. China is projected to grow this year at 8.4 percent. Now, while China's economy had already returned to pre pandemic GDP in 2020, many other countries are not expected to do so until 2023.

Now these diverging recovery paths are likely to create wider gaps in living standards across countries compared to pre pandemic expectations. The average annual loss in per capita GDP over 2020 to 24 relative to pre pandemic forecasts is projected to be 5.7 percent in low income countries and 4.7 percent in emerging markets. While in advanced economies, the losses are expected to be smaller at 2.3 percent. Such losses are reversing gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020 compared with pre pandemic projections.

Uneven recoveries are also occurring within countries as young and low skilled workers and women remain more heavily affected. Now, because the crisis has accelerated the transformative forces of digitalization and automation, many of the jobs lost are unlikely to return, requiring worker reallocation across sectors which unfortunately often comes with severe earning penalties.

Swift policy action worldwide, including 16 trillion dollars in fiscal support, prevented far worse outcomes. Our estimates suggest last year's severe collapse could have been three times worse had it not been for such support. Now, because the financial crisis was averted, medium term losses are expected to be smaller, though still substantial then after the global financial crisis at around 3 percent. However, unlike after the 2008 crisis, this time it is emerging markets and low-income countries that are expected to suffer greater scarring given their more limited policy space.

Now, a high degree of uncertainty surrounds the projections. Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways. This could cause inflated asset valuations to unwind in a disorderly manner, financial conditions to tighten sharply and recovery prospects to deteriorate, especially for some highly leveraged emerging markets and developing economies.

Now policymakers will need to continue supporting their economies while dealing with more limited policy space and higher debt levels than prior to the pandemic. This requires better targeted measures to leave space for prolonged support of needed. With multi speed recoveries, a tailored approach is necessary with policies well calibrated at this stage of the pandemic, the strength of the economic recovery and the structural characteristics of individual countries. Right now, the emphasis should be on escaping the health crisis by prioritizing health care spending on vaccinations, treatments, healthcare infrastructure. Fiscal support should be well targeted to affected households and firms, and monetary policy should remain accommodative while proactively addressing financial stability risks. Now, as a pandemic is beaten back and labor market conditions normalize, support such as worker retention measures should be gradually scaled back. At that point, more emphasis should be placed on reallocating workers, including through targeted hiring subsidies and reskilling of workers. Now, as exceptional measures such as a moratorium on loan payments are withdrawn from insolvencies could rise sharply and put 1 in 10 jobs at risk in many countries. To limit long term damage, countries should consider converting previous liquidity support into equity like support for viable firms, while developing out-of-court restructuring frameworks to expedite eventual bankruptcies.

Resources should also be devoted to helping children catch up on lost instructional time during the pandemic. Now, once the health crisis is over, policy efforts can focus more on building resilient, inclusive and greener economies, both to bolster the recovery and to raise potential output. The priority should include green infrastructure investment to help mitigate climate change, digital infrastructure investment to boost productive capacity and strengthening social assistance to arrest rising inequality. Financing these endeavors will be more difficult for economies with limited fiscal space. In such cases, improving tax capacity, increasing tax progressivity, deploying carbon pricing, and eliminating wasteful expenditures will be essential. All countries should anchor policies, in credible medium-term frameworks and adhere to the highest standards of transparency to help contain borrowing costs and eventually reduce debt and rebuild buffers for the future.

On the international stage, first and foremost, countries need to work together to ensure universal vaccination. While some countries will get to widespread vaccinations by the summer, most will likely have to wait till the end of next year. Speeding up vaccinations will require ramping up vaccine production and distribution, avoiding export controls, fully funding COVAX facility and ensuring equitable global transfers of excess doses.

Policymakers should also continue to ensure adequate access to international liquidity. The major central bank should provide clear guidance on future actions with ample time to prepare to avoid taper tantrum kinds of episodes, as occurred in 2013. Low income countries will benefit from further extending the pause on debt repayments under the debts service suspension initiative and operationalizing the G20 common framework for orderly debt restructuring.

A new allocation of the IMF special drawing rights will provide needed liquidity protection in what is still highly uncertain times. Now, even while all eyes are on the pandemic, it's essential that progress is made in resolving trade and technology tensions and countries will need to cooperate on climate change mitigation, on modernizing Internet and modernizing international corporate taxation.

Over the past year, we have seen significant innovations in economic policy and massively scaled up support at the national level, particularly among advanced economies that have been able to afford these initiatives. A similarly ambitious effort is now needed at the multilateral level to secure the recovery and build forward better. Without additional effort to give all people a fair shot, across country, gaps in living standards could widen significantly, and decades long progress in global poverty reduction could reverse.

Question: What are the changes to your policy recommendations since your last WEO in October? And has the economic policy toolkit needed to address the crisis, has it been adapted or does it need to be adapted?

Gita Gopinath: So thank you. Yes, indeed. The crisis has evolved over time and what we are seeing is multi speed recoveries around the world. What that means is that countries that had very different stages, both in terms of the pandemic but also in terms of their recovery and how quickly they're coming back to pre covid GDP levels. So that's why we emphasize that now it's important for countries to take a tailored approach which is specific to where they are in terms of the speed of the recovery and in terms of the country specific characteristics. For instance, how much do you rely on tourism? Because we know that that's going to be affected for a longer period. A second policy implication is that support should be well targeted because this is obviously a pandemic that has gone on for much longer than one might have expected and support would be needed for a while. So to be able to flexibly respond to providing support if in case there are future waves of this pandemic, you need to have well targeted measures so that you have the space to provide the support. Now, I think it's fair to note that the large amount of support that was provided and has been provided so far prevented much worse outcomes. And like we said, the recession in 2020 would have been three times as large if it was not for all these measures. So, I believe a lot has been done, but policy support will need to be continued in a flexible, tailored and targeted manner.

Question: What does the IMF think about Secretary Yellen call yesterday for a global minimum corporate tax?

Gita Gopinath: We have for long been in favor of a common global corporate minimum tax. It is a big concern that we have a large amount of tax shifting, tax avoidance, countries sending money to tax havens, and that's reducing the tax base from which governments can collect revenues and do the necessary social and economic spending that's required. So we are very much in favor of a global minimum corporate tax.

Question: Further on the tax question, Gita, so the and there are people, you know, including the U.S. Chamber of Commerce, that say that the Biden administration's call for raising the corporate tax could lead to companies leaving the United States and could slow the U.S. economy. Have you had a chance to look at that yet? And what is your thinking about that as distinct from Yellen's call for a global minimum tax?

Gita Gopinath: We still have to study very carefully this the new proposal from the Biden administration. So it's a bit premature for us to talk about what the effect would be if the tax rates went up from 21 percent to 28 percent. We did have a pretty careful study of what happened the last time around, which is when you had the corporate tax cut from 35 percent to 21 percent. And in that time, at least when you look at the evidence, the impact, for instance, on investment was not that large. So the kind of the standard supply side impulses that you would expect were somewhat weaker than we would have thought ex-ante. But again, let's see. You know, we'll have to say this is a little more carefully for this current round.

Question: In the fiscal monitor to you, raised the possibility of, you know, sort of more progressive income taxes. You also talk about possibly even a wealth tax and ensuring that companies really do chip in. I mean, do you have a suggestion for this OECD discussion about what the global minimum tax should be to ensure that companies are helping fund the necessary social safety net, but also climate investments?

Gita Gopinath: The simple answer is no. I don't have a number for you at this point. Again, like I said, we are we are studying this. Now governments will need to build back their fiscal positions after this crisis. The hope is that they will build forward better to have more inclusive, sustainable green economies. And that would require measures both on the revenue side and on the expenditure side. And again, for some countries, it would mean increasing tax capacity. And for some others it would involve a progressivity of taxes. So, again, it's going to be a tailored response.

Question: Yes, good morning. I wanted to ask these questions about [your views] on US proposals. I know in January you had studied the impact of a recently passed US$1.9 trillion stimulus proposal by the Biden administration. I am curious about the IMFs study thus far of the 2 trillion infrastructure proposal and how much that would impact if that were to be passed?

Gita Gopinath: We don't have a number for you, so we are still working on it. We don't have an estimate at this point. We certainly support the idea of needed public infrastructure investments. We have again, been calling for that in all aspects in terms of roads and bridges, water, telecommunications. So, that would be very, quite welcome. And also, the green focus is, again, something that we would support. Now, of course, our research points very strongly to the need for carbon pricing to successfully attain climate mitigation goals. And the current proposal doesn't have that. So I would say that that's one area that I hope the administration will look into more, which is on carbon pricing.

Question: To what extent the anticipated rise in U.S. interest rates could affect the performance of the economic activity in the Middle East and for the developing countries as well?

Gita Gopinath: So we have to look at the rise in interest rates in the context of the global recovery, and especially with the very strong recovery projected for the U.S.. And so, we've actually researched this and we have an analytical chapter in a spillover chapter in this world economic outlook which goes into this. And what we see is that, you know, obviously when there's better growth that has positive benefits for U.S. trading partners, and that is one positive effect that outweighs the effect of rising interest rates. So, as long as the increase in interest rates is orderly, it remains low, the spreads that we are seeing in emerging and developing economies, you know, even in the Middle East, are mostly well behaved. And so, in that particular environment, we should see that, financial conditions should remain fairly accommodative. But, of course, there is important reasons to be concerned. When we have multispeed recoveries, if it so happens that interest rates start going up much faster, there is a loss in risk appetite then that can have a sharp effect on portfolio flows to all parts of the world, including the Middle East. And that is indeed one of our downside risks that we have. But, again, we have to keep in mind the balance, the fact that there is positive growth and then and there are many countries that have much larger foreign exchange reserves than they did during the 2013 taper tantrum episode. But on the other hand, they have higher levels of debt and fiscal needs. So, I think our assumption is the financial conditions will remain well behaved. But there are certainly there are downside risks, too.

Question: One related question shouldn't the Fed start to pull back its easing? Don't you see it as a prudent risk management?

Gita Gopinath: Well, at this point, the Fed has made quite clear that the risk that they are still worried about is off, not durably attaining their inflation goals. Inflation and employment goals. And that's the reason why they plan to stay on hold for some time because they know there's distance to travel. I think what's different from the past, when you said that you would move in the expectation that maybe inflation would go up, I mean, this time the statement is that they would wait to actually see inflation reach their target. So, again, given the mandate, the policy of moving gradually is consistent. Of course, they have, of course, also pledged to kind of give sufficient advance warning if they were to reverse course, be it asset purchases or be it interest rate hikes. And again, we expect that that will happen.

Question: A couple of questions here on Africa. Can you talk a little bit more specifically about the situation in sub-Saharan Africa? [What is] your assessment, how much of the new SDR allocation would the African countries need to restart their economies?

Gita Gopinath: Thank you. I'm going to hand it over to my colleague Malhar here. But before I do that, just to mention, in terms of the SDR allocation, we expect about 21 billion of that to go to low income countries. So, an important share will also go to sub-Saharan Africa. But more broadly, I don't have the exact number for sub-Saharan Africa. But let me hand it over to a Malhar Nabar.

Malhar Nabar: Thanks, Gita. On the overall situation in sub-Saharan Africa. Last year, the region experienced the historic contraction of negative one point nine percent. But we expect a recovery to resume this year with growth close to three and a half percent and that for that to continue next year. Now, within the region, of course, there are huge differences in countries circumstances, the tourism dependent economies such as Seychelles and Rishis. Have been particularly hard hit with the collapse of cross-border travel and the collapse of cross-border tourism, the other resource dependent economies are also in a tight spot, whereas the more diversified economies seem to be recovering a bit faster than the others. The region as a whole entered this crisis with high levels of debt vulnerabilities. The decline in revenues with the pandemic and the increase in crisis related spending has, of course, made that situation even more difficult. And a lot of effort will be needed to help countries in this region regain the paths of convergence that they were on before the crisis hit. And that must come from the international community with the efforts that, for instance, the IMF has been anchoring as well, but also within countries, the efforts -once this crisis fades- the efforts must be directed towards boosting domestic revenue sources, catalyzing private financing and ensuring that that the country, the region as a whole resume's a part of healthy job creation to employ the young population of the region.

Question: UK is expected to have the strongest growth among advanced economies in 202[1]. This is largely just a reflection of how large the fine GDP was for the UK in 2020. And why was the UK growth upgraded in general?

Gita Gopinath: So indeed, I mean, UK was very hard hit, was very hard with the pandemic, it had one of the largest contractions among large economies in 2020. The first quarter of this year also the pandemic was it was tough. But it is doing exceptionally well on the vaccination front. And we you know, the expectation is that by sometime in July, they would get to a truly widespread coverage in which in which case the economy opens at that time. So that is looking promising. There also there was the additional stimulus that was provided in the March budget round. You know, we welcome the extension of some of the lifelines into this year, just given the status of the pandemic. So, both of those were behind the increase in the upgrade. Now, of course, Brexit had a hard knock in the first couple of months of this year in terms of the impact on trade. Some of that will continue to weigh. I don't know if Petya would like to add anything on the UK?

Petya Koeva Brooks: Don't have to add much. But just to say that of our upward revision for this year, which is about 0.8, 0.3 of that is the impact of the fiscal measures that were in the budget. Thank you, sir.

Question: Could you elaborate on the reasons for raising China's economic growth projections this year? And how is this year's growth different from last and what are the challenges down the road?

Gita Gopinath: So, for China, we have a smaller group of about I say 0.3 percentage points. And that reflects basically the external environment having improved in the sense of with global growth being stronger, you have more exports. The U.S., you know, a rescue plan, that spending is also will increase demand for China's goods. There also still remains a high level of demand for pandemic related products. And so the kind of the update is really externally driven. In terms of the growth going forward, you know, it's been a very strong recovery. China was an economy a large economy that had positive growth in 2020, and we projected to grow 8.4 percent this year. So, it's quite strong.

However, we view it as a somewhat unbalanced recovery in the sense that it's still very heavily reliant on public support, public investment and private consumption has not recovered as fast as we would have hoped. So to make this a durable recovery, our hope is that fiscal measures and other support measures would work in the direction of supporting the recovery coming from the private sector as opposed to the public sector.

Question: A question on India now, what are the factors behind the rise in India's growth prospects to 12.5 percent this year? And how are you considering the recent spike in Covid cases?

Gita Gopinath: So, in the case of India, we have a pretty small change. It's 1 percentage increase for growth for 2021. This came in with high frequency... The evidence we were getting in the last couple of months in terms of the normalization of economic activity. These numbers precede the current wave of the virus, which is quite concerning. So, it indeed comes before that. But let me actually bring in a Malhar Nabar and see if you would like to add something else on India.

Malhar Nabar: Perhaps Gita. Just to add that the current forecast that we have already takes a fairly conservative view on the sequential growth for the Indian economy for this for this year. But it's true that with this very worrying uptick in cases that that poses very severe downside risks to the growth outlook for the economy.

Question: I'd like to talk about Brazil. Of course, in recent months, large companies have left or decreased their presence in Brazil, such as for LG. Sony and foreign investors were not very excited about Brazil even before the pandemic. But now they keep more of foreign capital. In those important companies, it's even more evident. So, is Brazil losing competitive edge because of this crisis? What is the impact of this movement for post pandemic recovery?

Raphael Anspach: Thank you. Before I turn to Gita and Petya, I do have another question on Brazil here, which I'm going to read. And the question is, why does the IMF predict that Brazil is going to grow at three point seven percent this year if the vaccination rollout and the speed of the recovery is slowing down? So those two questions.

Gita Gopinath: Brazil is one of the countries that have unfortunately been hit very hard by this pandemic. Just looking at the number of cases per 100000, the number of deaths per 100000. It's just it's very high. But that said, given the large amount of support that was provided, you know, the contraction that was seen in 2020, there was a floor put on it. It was not as bad as it would have been. Now the economy is expected to come back into in 2021. But still there are challenges. I mean, there are still financial conditions around the world. There is a risk of financial conditions tightening, that can be a problem. And we've seen some of that affecting Brazil. On the other hand, Brazil did provide additional emergency support measures, which has helped the outlook positively. And, of course, the global economy recovering will help. But again, the number one priority has to be on the vaccination front and getting rolling out a much more speedier vaccination than what we are seeing at this point. I'm going to ask Petya if she would like to come in and add anything, including on the business environment.

Petya Koeva Brooks: Sure. When it comes to the recovery this year, we do have growth projected at 3.7%. And that is, I would say, a very slight uptick relative to what we had in January as we had factors going in different directions. On one hand, we had the positive impact from the U.S. fiscal stimulus. And on the other hand, we had the higher interest rates which Brazil faced. The other thing I would mention is that what's also underpinning our forecast is the expectation that in this quarter, in the first quarter, we are going to see negative growth. But then in the second quarter, as the impact of the new emergency aid, which was provided in the form of cash transfers, is going to start helping.

Now, when it comes to the business climate, this is an area in which I think having improvement in that which and I think part of that is going to also come with the receding of the pandemic. But this is clearly an area in which anchoring that and making sure that that that climate is favorable would be particularly important for the recovery in private investment, which is something that we are expecting.

Question: I have a couple of questions here on Mexico. What are the factors that motivate the estimated five percent growth in Mexico's GDP for 2021? What can be what could the impact be on the economy if the current vaccination strategy fails?

Gita Gopinath So with Mexico, what we're seeing, which is what we've been seeing for a for a while now, is what we call a two speed recovery: which is the economy is, you know, rebounding from its 20-20 lows, which is a very deep contraction. Mainly because of external demand, because of demand coming in the other parts of the world, which has had very strong exports in these past several months. On the other hand, domestic demand remains subdued. So this is the two-track recovery. Now, again, well, one of the big beneficiaries of the US$ 1.9 trillion rescue plan package would be Mexico, as would, you know, Canada. These are the main trading partners. And so that would also benefit Mexico. When we look at vaccinations in Mexico, it has indeed been somewhat slow in the first quarter. But our expectation is that in the second quarter, it things will ramp up, that there will be more supply available and distribution will take place. And so, we are hopeful this second quarter will actually see a faster recovery. But again, like for all countries that would apply for Mexico to us, we're not out of the woods and the pandemic is not over. And countries should provide adequate support to their people and their firms. And that's required even now.

Question: What is your overview about the Argentine economy, given that in the past the IMF highlighted some of the important macroeconomic imbalances? And what is driving your upgrade in your forecast?

Gita Gopinath: So Argentina, like many other countries in the region, of course, also has had to deal with many waves of the pandemic. The upgrade reflects to some extent that the containment measures in the most recent round, the virus itself had somewhat of a less negative effect on economic activity than was previously anticipated. Argentina is also benefiting from an increase in price of food around the world, world food prices, which is one of the main exports of Argentina. And so that's that is also helping the country. Of course, challenges remain. Inflation remains high, inflation expectations are not well anchored. So clearly, there's a lot more that needs to be done in terms of macroeconomic stabilization. The government is clearly working very hard on it. And we are in close collaboration with Argentina to help build a stronger social and economic framework.

Question: I have a question on Pakistan. So the projection that your GDP is going to reach five percent in 2026. Why do you think it's going to take such a long time in getting the same level it did in 2017? And what are some of the assumptions in the scenario?

Gita Gopinath: Thank you. I'm going to ask my colleague to come in. Thank you.

Petya Koeva Brooks: So what we are seeing in Pakistan is, I would say, a very subdued recovery. We have growth projected this year at 1.5% and then going up to 3% next year. So what is underpinning this assumption is the is the continued recovery in the industry and construction sectors. As in other countries, we've also seen this two-track recovery within the economy with services lagging behind. Now, clearly, the path of the pandemic, as well as the ability of the authorities to provide policy support, would be important for that outcome.

Question: Could I ask what are your concerns about the explosive growth of United States debt? What are the implications possibly for the global financial system?

Gita Gopinath: So firstly, when you look at the debt numbers in the U.S., they have gone up significantly. But if you look at the debt servicing costs in the U.S., those have actually gone down over time. So if you look at the actual cost of making those payments, they're much lower now because interest rates are still very low and they've been low for a while now compared to the past. So, this is a common trend, by the way, we see for a bunch of countries where debt levels have gone up, but interest rates have come down. So, again, the question is, what do we see in terms of concerns into debt servicing ability, rollover risks and so on? And for the U.S. on both those fronts, we don't see them as as as major concerns, because that would be the broad point. Of course, there was none of this detracts from the basic idea that when you provide policy support, that you should provide it, of course, in a well targeted, tailored manner to get the best, you know, best reaction, best economic effect on the economy. So that's still that, of course, applies. But in terms of just the level of debt at this point is not something we're flagging as a major concern.

Question: Yes, I was asking about how our eurozone and the countries that are lagging for the moment. You only recommendations for the countries over there and what you see how they can catch up and when they are and compared to the U.S.

Gita Gopinath: Thank you. So, the euro area is also projected to rebound this year after a very significant collapse, but it is at a slower pace. So, you know, it's expected to get back to pre covid levels next year, not this year, next year. Now, different countries will gather in different places. You know, Germany, for instance, in the first half and so on, and Spain actually would come later. So, there is, again, multispeed recoveries even within the euro area. If you look at the fiscal support that's in the system, I would say that it is quite substantial even for 2021. So, I think they are in a good place. The big challenge right now in the euro area is the virus and vaccinations. So, again, we have had the third wave. We're seeing the third wave in these countries. Vaccinations have been so far, have been slow to roll out. But again, I think the second quarter we should expect to see a much faster roll out with much more supply coming on. I think both of those will help with the faster normalization. I think these are a couple of factors which have set the euro-area a kind of a couple of months behind the U.S. in terms of the recovery. But again, once this is addressed in terms of the vaccinations and when the EU recovery funds, the new generation EU recovery funds are used, hopefully used in an efficient in a well targeted manner to raise public investment, to have a green, inclusive recovery. I think all of that will be very positive for the Euro-area.

Raphael Anspach: Great. So on that, we'll wrap this conference, this press conference. Thank you very much for joining us, for listening in for your questions. And thank you to our speakers, Gita, Petya and Malhar. And stay safe, stay well and hopefully see you all soon in person. Thank you very much.

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