Transcript of October 2021 World Economic Outlook Press Briefing
IMF News, October 13, 2021
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- Published: October 13, 2021
Global outlook — key findings
- Global growth projection for this year revised down marginally to 5.9 percent (July forecast comparison).
- Global growth projection for 2022 unchanged at 4.9 percent.
- Pandemic (Delta variant) has driven the recorded global COVID‑19 death toll close to 5 million.
- If COVID‑19 has a prolonged impact into the medium term, it could reduce global GDP by cumulative $5.3 trillion over the next five years relative to the current projection.
- Aggregate output for the advanced economy group is expected to regain its pre‑pandemic trend path next year and exceed it by 0.9 percent in 2024.
- Aggregate output for the emerging market and developing economy group, excluding China, is expected to remain 5.5 percent below the pre‑pandemic forecast in 2024.
Divergences, vaccines, and health priorities
- Great vaccine divide:
- Over 60 percent of the population in advanced economies are fully vaccinated (some receiving booster shots).
- About 96 percent of the population in low‑income countries remain unvaccinated.
- Africa: less than 4 percent of the population vaccinated.
- Vaccination targets and immediate priorities:
- Vaccinate at least 40 percent of the population in every country by the end of this year.
- Vaccinate 70 percent by the middle of next year.
- Actions required: high‑income countries fulfill vaccine donation pledges, coordinate with manufacturers to prioritize deliveries to COVAX, and remove trade restrictions on vaccines and their inputs.
- Health financing gap:
- Closing the $20 billion residue of grant funding gap for testing, therapeutics, and genomic surveillance is urgent to save lives now and keep vaccines fit for purpose.
- Regional production and technology transfer:
- Vaccine manufacturers in high‑income countries should support expansion of regional production in developing countries through financing and technology transfers.
Inflation, supply disruptions, and monetary policy
- Supply disruptions from pandemic outbreaks and climate events have caused shortages of key inputs, lowering manufacturing activity and feeding consumer price inflation in many countries.
- Food prices have increased the most in low‑income countries, exacerbating food insecurity.
- Monetary policy stance:
- Headline inflation is projected to likely return to pre‑pandemic levels by the middle of next year for the group of advanced economies and emerging and developing economies, amid high uncertainty.
- Considerable heterogeneity across countries; upside risks for some countries like the U.S. and the United Kingdom and some emerging market and developing economies.
- Central banks should be prepared to act quickly if risks of rising inflation expectations become material: chart contingent actions, announce clear triggers, and act according to that communication.
- Indicators to monitor for durable inflation:
- Medium and long‑term inflation expectations with every data release.
- Wage inflation (noting elevated wage inflation in the U.S. concentrated in some sectors).
- Shelter inflation and spillovers from housing‑price run‑ups.
Fiscal policy, public debt, and structural priorities
- Policy tradeoffs have become more complex as risks to economic prospects increased.
- With public debt at record highs, initiatives should be rooted in credible medium‑term frameworks backed by feasible revenue and spending measures to lower financing costs and increase fiscal space.
- Fiscal prioritization:
- Healthcare spending should continue to be prioritized.
- Lifelines and transfers should become increasingly targeted and reinforced by retraining and support for reallocation.
- As health outcomes improve, policy emphasis should shift to long‑term structural goals.
Multilateral policy proposals and financial instruments
- IMF and SDRs:
- Built on the historic $650 billion SDR allocation.
- Call for countries with strong external positions to voluntarily channel their SDRs into the Poverty Reduction and Growth Trust.
- IMF exploring the establishment of a Resilience and Sustainability Trust to provide long‑term funding for sustainable growth investments.
- Debt and liquidity support:
- Concerted multilateral efforts needed to ensure international liquidity is adequate for constrained economies.
- Faster implementation of the G‑20 Common Framework to restructure unsustainable debt would help limit divergences across countries.
Regional and country highlights
- China:
- Slight downgrade reflecting somewhat stronger than anticipated fiscal tightening; additional challenges in the property sector and supply chain disruptions.
- IMF regards CPTPP as a high‑quality trade agreement and considers it positive for the world if more countries join.
- Brazil:
- Small downgrade due to effects from rising monetary policy rates amid high inflation and a downward revision for the U.S. (a major trading partner). (Question referenced forecasts of 1.5 percent this year and 2.1 percent in 2026.)
- India:
- No change to growth forecasts for this year and next; growth forecasts referenced in question as 9.5 and 8.5 percent for financial years 2022 and 2023.
- Room to provide more targeted support if the pandemic worsens; need for a credible medium‑term strategy to bring down the debt‑to‑GDP ratio.
- Philippines:
- Projected growth: 3.2 percent this year and 6.3 percent in 2022.
- Near‑term downgrade due to second‑quarter pandemic surge; recovery expected to strengthen with vaccine rollout and policy support.
- Africa:
- Severe vaccine access shortfalls (less than 4 percent vaccinated); urgent need for vaccine deliveries and prioritization to COVAX.
- Additional financing requirement estimated at around $250 billion over the next five years to meet development goals.
- Mexico:
- Recovery becoming broader‑based (exports/manufacturing and services).
- Rolling back energy‑sector reforms increases policy uncertainty and can inhibit private‑sector investment.
Financial stability and non‑bank sector risks
- Increased risk‑taking in financial markets and rising fragilities in the non‑bank financial institutional sector pose policy challenges.
- Policy clarity and consistent actions are essential to avoid unnecessary policy accidents that can roil financial markets (examples cited: U.S. debt ceiling brinkmanship, disorderly debt restructurings in China's property sector, escalating cross‑border trade and technology tensions).
Policy recommendations (enumerated)
- Global health and vaccines:
- Fulfill vaccine donation pledges.
- Prioritize deliveries to COVAX.
- Remove trade restrictions on vaccines and inputs.
- Close the $20 billion residue grant funding gap for testing, therapeutics, and genomic surveillance.
- Expand regional vaccine production via financing and technology transfers.
- Climate and green transition:
- More ambitious commitments to reduce greenhouse gas emissions at the upcoming United Nations Climate Change Conference.
- Policy strategy to include an international carbon price floor adjusted to country circumstances, a green public investment and research subsidy push, and compensatory targeted transfers to households.
- Fiscal and debt policy:
- Adopt credible medium‑term fiscal frameworks with feasible revenue and spending measures.
- Channel SDRs voluntarily to Poverty Reduction and Growth Trust; consider Resilience and Sustainability Trust for long‑term funding.
- Accelerate implementation of G‑20 Common Framework for debt restructuring.
- Monetary policy:
- Monitor inflation expectations, wage inflation, and shelter inflation closely.
- Central banks should be prepared to act quickly with contingent plans and clear communication to avoid de‑anchoring expectations.
Transcript of October 2021 World Economic Outlook Press Briefing — October 12, 2021, IMF Communications Department.