Transcript of the World Economic Outlook Update Press Briefing

IMF News, July 27, 2021

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Bibliographic details

• Published: July 27, 2021

Global growth outlook and composition

• Global growth forecast: 6 percent for this year (unchanged from previous Outlook).
• 2022 global growth projection: 4.9 percent (up from previous forecast of 4.4 percent).
• Composition changes:
  • Upgrade for advanced economies this year by 0.5 percentage point.
  • Downgrade for emerging markets and developing economies this year by 0.5 percentage point, driven by a significant downgrade for emerging Asia.
  • 2022 upgrade largely reflects sizeable upgrades for advanced economies and more modest upgrades for emerging markets and developing economies.
• Risk scenario: The emergence of highly infectious virus variants could wipe out $4.5 trillion, cumulatively, from global GDP by 2025.

Vaccination, pandemic divergences, and liquidity

• Vaccination coverage cited:
  • Close to 40 percent of the population in advanced economies fully vaccinated.
  • 11 percent in emerging market economies fully vaccinated.
  • A tiny fraction in low-income developing countries fully vaccinated.
• Global vaccine proposal and targets:
  • IMF staff proposal (endorsed by WHO, World Bank, WTO) sets a goal of vaccinating at least 40 percent of the population in every country by the end of this year, and at least 60 percent by the middle of next year, alongside ensuring adequate diagnostics and therapeutics, at the price of $50 billion.
  • To achieve targets: at least one billion vaccine doses should be shared in 2021 by countries with surplus vaccines.
  • About half a billion doses has been announced (still short of the one billion target).
  • Manufacturers should prioritize deliveries to low and lower-middle income countries; remove trade restrictions on vaccine inputs and finished vaccines; invest in regional vaccine capacity.
• International liquidity and SDRs:
  • Advanced-economy fiscal support: $4.6 trillion of announced pandemic related measures available in 2021 and beyond.
  • General allocation of special drawing rights proposed: $650 billion; should be completed quickly to provide liquidity buffers (IMF staff expects completion relatively soon, sometime in August).

Inflation dynamics, drivers, and risks

• Baseline assessment: In most advanced economies, inflation is expected to subside to pre-pandemic ranges next year for three reasons:

1. A significant fraction of abnormally high inflation readings is transitory, resulting from pandemic-affected sectors and low base comparisons. 2. Overall employment rates remain well below pre-pandemic levels; overall wage growth remains within normal ranges despite rapid wage growth in some sectors. 3. Long-term inflation expectations remain well-anchored.

• Specific figures and expectations:
  • U.S. high inflation reading this year around 4 percent (IMF statement).
  • IMF projects core personal consumption expenditure inflation in the U.S. to come down to around 2.5 percent by the end of next year.
• Upside risks to persistent inflation include:
  • More persistent supply disruptions.
  • Sharply rising housing prices feeding into CPI via owner-occupied rents with lags.
  • Continued food price pressures and currency depreciations in some emerging markets and developing economies.
• Signs that would raise alarm: medium-term inflation expectations de-anchoring and moving durably away from central bank targets (e.g., the Fed's 2 percent target), indicating inflation is no longer transitory and could feed into wage and price-setting behavior.

Supply-chain disruptions, trade bottlenecks, and real activity

• Observations:
  • Delivery times to major economies have increased; shipping costs are at very high levels.
  • Supply-chain disruptions (including semiconductor shortages) are slowing industrial production and affecting sectors such as autos.
• Outlook: IMF expects many of these bottlenecks to be ironed out toward the end of this year, subject to the caveat of no further major pandemic waves.

Policy recommendations and sequencing

• Multilateral actions:
  • Rapid worldwide access to vaccines, diagnostics, and therapeutics to save lives, prevent new variants, and add trillions to global recovery.
  • Complete the general SDR allocation of $650 billion quickly to provide liquidity buffers.
  • Ensure the G20 common framework delivers on debt restructuring for countries with unsustainable debt.
• National policy guidance:
  • Stage policies to the pandemic: prioritize health spending (vaccinations, targeted support), then secure the recovery (broader fiscal and monetary support as space allows, remedial measures to reverse education losses), and finally invest in long-term goals (productive capacity, low-carbon transition, digitalization, equitable sharing of gains).
  • Fiscal actions should be nested within a credible medium-term fiscal framework to keep debt sustainable.
  • Monetary policy: central banks should avoid premature tightening when inflation pressures are judged transitory, but be prepared to move quickly if inflation expectations de-anchor.
  • Major central banks should clearly communicate monetary policy outlooks to avoid abrupt tightening of financial conditions; this is important to preserve access to international liquidity for financially constrained economies.

Regional and country-specific notes and key figures

• Advanced economies vs emerging markets: Upgrades concentrated in advanced economies; emerging markets and developing economies face downgrades and more limited fiscal space.
• United States:
  • High growth readings this year (example referenced: 7 percent for the U.S. in discussion).
  • Core PCE inflation expected to fall to around 2.5 percent by end-2022.
• United Kingdom:
  • Sizeable upgrade for 2021 driven by stronger-than-expected monthly GDP (February–April) and strong vaccine rollout.
  • Medium-term scarring: about a 3 percent projected gap for 2025 relative to pre-pandemic trend.
• China:
  • Small downgrade for this year of -0.3 (attributed to smaller-than-expected fiscal support).
  • Very slight upgrade for next year driven by stronger external demand.
• Emerging Asia (including India, Vietnam, Malaysia, Indonesia):
  • Significant downgrades driven by Delta variant outbreaks and rising cases.
• Brazil:
  • Significant upgrade for this year; 2022 projection moved down from 2.6 to 1.9 as recovery is brought forward into 2021.
• Russia:
  • Growth this year expected to be around 4.4 percent (an upward revision of 0.6); 2022 revised down by 0.7 as recovery moderates.
• Argentina:
  • 2020 output collapse: -9.9.
  • 2021 growth projected: 6.4 (sizeable upgrade of 0.6).
  • 2022 growth projected: 2.4.
• Mexico:
  • Upgrade for 2021 reflecting stronger domestic demand rebound and improved vaccination rates.
  • Debt-to-GDP metrics revised down partly due to higher GDP forecasts.
• Nigeria:
  • 2021 forecast maintained at 2.5 percent.
  • 2022 upgraded to 2.6 percent (improved terms of trade and expected higher oil production).
  • Nigeria accessed IMF emergency financing last year, contributing to liquidity.
• MENA region:
  • Aggregate growth for the region expected around 4.1 percent this year (a slight revision relative to previous forecast).
  • Heterogeneous outcomes across oil exporters (e.g., Saudi Arabia downward revision) and non-oil sectors benefiting from higher commodity prices.
• Japan:
  • Downgrade driven by extended state of emergency; Olympic-related impact on GDP from fewer spectators/international travelers estimated at less than 0.1 percent of GDP by market estimates.

Long-term shared challenges

• Climate change and carbon emissions:
  • Need for a multipronged strategy with carbon pricing as a centerpiece, green infrastructure, and subsidies for green-technology research.
  • Recovery spending to date: only 18 percent allocated to low-carbon activities; much more needed to lower carbon dependence.
• Structural policy priorities:
  • Boost productive capacity, accelerate low-carbon transition, harness digitalization, and ensure gains are equitably shared to support medium-term growth.

Transcript of the World Economic Outlook Update Press Briefing, July 27, 2021, IMF Communications Department

References

• Gita Gopinath
• PRESS CENTER
• https://www.imf.org/en/home