Transcript of April 2021 World Economic Outlook Press Briefing
IMF News, April 6, 2021
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- Published: April 6, 2021
Global outlook and headline projections
- Global growth projected at 6 percent in 2021 and 4.4 percent in 2022 after an estimated historic contraction of -3.3 percent in 2020.
- United States projected to grow at 6.4 percent in 2021.
- China projected to grow at 8.4 percent in 2021.
- IMF notes the global recovery has been stronger than the January forecast, driven mainly by upgrades for advanced economies and additional fiscal support in large economies.
Diverging recoveries and medium-term scarring
- Recoveries are diverging across and within countries; many countries are not expected to return to pre-pandemic GDP until 2023.
- Average annual loss in per capita GDP over 2020 to 24 relative to pre-pandemic forecasts:
- 5.7 percent in low income countries
- 4.7 percent in emerging markets
- 2.3 percent in advanced economies
- Additional 95 million people expected to have entered the ranks of the extreme poor in 2020 compared with pre-pandemic projections.
- Job reallocation required by digitalization and automation; many lost jobs are unlikely to return and reallocation often entails severe earning penalties.
- IMF estimates last year's collapse could have been three times worse without policy support.
- Medium-term losses expected to be around 3 percent, smaller than after the global financial crisis but still substantial; emerging markets and low-income countries expected to suffer greater scarring due to more limited policy space.
Fiscal, monetary, and structural policy recommendations
- Swift policy action worldwide, including 16 trillion dollars in fiscal support, prevented far worse outcomes.
- Current policy emphasis:
- Prioritize health care spending on vaccinations, treatments, healthcare infrastructure.
- Fiscal support should be well targeted to affected households and firms.
- Monetary policy should remain accommodative while proactively addressing financial stability risks.
- Sequencing as recovery proceeds:
- Gradually scale back worker retention measures as labor markets normalize.
- Emphasize worker reallocation via targeted hiring subsidies and reskilling.
- Convert liquidity support into equity-like support for viable firms and develop out-of-court restructuring frameworks to expedite insolvencies; without this, insolvencies could rise sharply and put 1 in 10 jobs at risk in many countries.
- Education and social policy:
- Devote resources to help children catch up on lost instructional time.
- Strengthen social assistance to arrest rising inequality.
- Longer-term growth priorities:
- Invest in green infrastructure to mitigate climate change.
- Invest in digital infrastructure to boost productive capacity.
- Financing recommendations for fiscally constrained economies:
- Improve tax capacity and increase tax progressivity.
- Deploy carbon pricing.
- Eliminate wasteful expenditures.
- Anchor policies in credible medium-term frameworks and adhere to high transparency standards to contain borrowing costs and rebuild buffers.
International cooperation and liquidity support
- Universal vaccination is essential; many countries likely to wait until the end of next year for widespread coverage.
- Steps to speed vaccinations: ramp up production and distribution, avoid export controls, fully fund the COVAX facility, and ensure equitable global transfers of excess doses.
- Ensure adequate access to international liquidity:
- Major central banks should provide clear guidance on future actions with ample time to prepare to avoid "taper tantrum" episodes.
- Low income countries benefit from extending the pause on debt repayments under the Debt Service Suspension Initiative and operationalizing the G20 common framework for orderly debt restructuring.
- A new allocation of IMF special drawing rights expected to provide needed liquidity protection; IMF expects about 21 billion of that to go to low income countries.
Risks, scenarios, and financial spillovers
- High uncertainty around projections:
- Faster vaccination progress could uplift forecasts.
- A prolonged pandemic or vaccine-evading variants could sharply downgrade forecasts.
- Multispeed recoveries could pose financial risks if U.S. interest rates rise unexpectedly:
- Orderly, low increases in U.S. interest rates may be outweighed by positive growth spillovers from the U.S. recovery.
- A disorderly rise in rates could unwind inflated asset valuations, tighten financial conditions sharply, and worsen recovery prospects, especially for highly leveraged emerging markets and developing economies.
- U.S. public debt: debt levels have risen significantly, but debt servicing costs have declined because interest rates remain very low; IMF does not flag immediate major concerns on U.S. debt servicing or rollover risks given current conditions, while stressing the importance of targeted, well-calibrated support.
Regional highlights and country-specific notes
- Sub-Saharan Africa:
- Region experienced a historic contraction of -1.9 percent in 2020.
- Recovery expected to resume with growth close to three and a half percent in 2021 and to continue into 2022.
- Tourism-dependent and resource-dependent economies particularly hard hit; the region entered the crisis with high debt vulnerabilities exacerbated by revenue declines and crisis-related spending.
- United Kingdom:
- Upward revision for 2021; IMF notes part of the upward revision (0.3) is the impact of fiscal measures in the March budget; overall upward revision about 0.8.
- Strong vaccination rollout expected to support reopening by summer; Brexit-related trade effects and timing of recovery vary across sectors.
- India:
- Forecast reflects a 1 percentage point increase for 2021 growth to 12.5 percent; forecast numbers precede a subsequent worrying uptick in cases and IMF views that the new wave poses severe downside risks.
- China:
- Upgrade of about 0.3 percentage points for 2021 driven mainly by improved external demand and strong U.S. fiscal stimulus; recovery described as unbalanced and still reliant on public support.
- Brazil:
- Projected to grow at 3.7 percent in 2021; outlook reflects factors in different directions including positive U.S. stimulus spillovers and higher domestic interest rates; vaccination rollout and business climate remain key to recovery.
- Mexico:
- Projected GDP growth of 5 percent in 2021 driven mainly by external demand and exports to partners benefiting from U.S. fiscal stimulus; domestic demand remains subdued and vaccination rollout speed is a risk.
- Argentina:
- Upgrade driven by less-negative-than-expected recent containment impacts and higher world food prices; challenges include high inflation and poorly anchored inflation expectations.
- Pakistan:
- IMF projects growth of 1.5 percent in 2021 and 3 percent in 2022; IMF notes a subdued recovery and two-track dynamics with services lagging industry and construction. Question raised about reaching 2017 GDP level by 2026.
- Fiscal and policy questions noted:
- IMF supports a global minimum corporate tax and is studying specific proposals, including the U.S. administration's corporate tax proposals; no specific minimum tax rate number provided at this time.
- IMF supports infrastructure investment and stresses the role of carbon pricing in climate mitigation.
Transcript of April 2021 World Economic Outlook Press Briefing