{
  "title": "Managing Divergent Recoveries",
  "publication": "IMF Blog, April 6, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/04/06/blog-weo-ch1-global-prospects-policies",
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  "summary": "It is one year into the COVID-19 pandemic and the global community still confronts extreme social and economic strain as the human toll rises and millions remain unemployed.",
  "sections": [
    {
      "heading": "Global outlook and growth projections",
      "content": "- Global growth is projected to be 6 percent in 2021 (0.5 percentage point upgrade) and 4.4 percent in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3 percent in 2020.\n- The upgrades for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly a sizeable upgrade for the United States (1.3 percentage points), with the United States expected to grow at 6.4 percent in 2021.\n- China is projected to grow in 2021 at 8.4 percent.\n- Many other countries are not expected to return to pre-pandemic GDP until 2023.\n- Additional fiscal support in large economies, particularly the United States, has further improved the outlook."
    },
    {
      "heading": "Divergent and unequal recoveries; economic scarring",
      "content": "- Recoveries are diverging across and within countries, with economies that have slower vaccine rollout, more limited policy support, and greater reliance on tourism doing less well.\n- The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be:\n  - 5.7 percent in low-income countries\n  - 4.7 percent in emerging markets\n  - 2.3 percent in advanced economies\n- An additional 95 million people are expected to have entered the ranks of the extreme poor in 2020 compared with pre-pandemic projections.\n- Uneven impacts within countries: young and lower-skilled workers remain more heavily affected; women have suffered more, especially in emerging market and developing economies.\n- The crisis has accelerated digitalization and automation; many of the jobs lost are unlikely to return, requiring worker reallocation across sectors with often severe earnings penalties.\n- Swift policy action worldwide, including $16 trillion in fiscal support, prevented far worse outcomes; estimates suggest last year’s severe collapse could have been three times worse without such support.\n- Because a financial crisis was averted, medium-term losses are expected to be smaller than after the 2008 global financial crisis, at around 3 percent; however, emerging markets and low-income countries are expected to suffer greater scarring given their more limited policy space.\n- One in ten jobs may be at risk in many countries as exceptional measures such as moratoria on loan payments are withdrawn."
    },
    {
      "heading": "Risks and uncertainty scenarios",
      "content": "- Faster progress with vaccinations can uplift the forecast.\n- A more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade.\n- Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways, potentially causing inflated asset valuations to unwind in a disorderly manner, tightening financial conditions sharply, and deteriorating recovery prospects—especially for some highly leveraged emerging markets and developing economies."
    },
    {
      "heading": "Policy priorities and recommendations (domestic)",
      "content": "- Prioritize escaping the health crisis by prioritizing healthcare spending—on vaccinations, treatments, and healthcare infrastructure.\n- Fiscal support should be well targeted to affected households and firms.\n- Monetary policy should remain accommodative (where inflation is well behaved), while proactively addressing financial stability risks using macroprudential tools.\n- Continue supporting economies with better-targeted measures to leave space for prolonged support if needed; tailor policies to the stage of the pandemic, the strength of the economic recovery, and structural characteristics of individual countries.\n- As the pandemic recedes and labor markets normalize:\n  - Gradually scale back worker retention measures.\n  - Place more emphasis on reallocating workers through targeted hiring subsidies and reskilling.\n- As moratoria and exceptional supports are withdrawn, consider converting previous liquidity support (loans) into equity-like support for viable firms and develop out-of-court restructuring frameworks to expedite eventual bankruptcies.\n- Devote resources to helping children catch-up on lost instructional time during the pandemic.\n- Once the health crisis is over, focus on building resilient, inclusive, and greener economies:\n  - Green infrastructure investment to mitigate climate change.\n  - Digital infrastructure investment to boost productive capacity.\n  - Strengthening social assistance to arrest rising inequality.\n- For economies with limited fiscal space, priorities include improving tax capacity, increasing tax progressivity (on incomes, property, and inheritance taxation), deploying carbon pricing, and eliminating wasteful expenditures.\n- Anchor policies in credible medium-term frameworks and adhere to the highest standards of debt transparency to contain borrowing costs and eventually reduce debt and rebuild buffers."
    },
    {
      "heading": "Policy priorities and recommendations (international)",
      "content": "- Work together to ensure universal vaccination:\n  - While some countries will get to widespread vaccinations by this summer, most, especially low-income countries, will likely have to wait until end-2022.\n  - Speeding up vaccinations requires ramping up vaccine production and distribution, avoiding export controls, fully funding the COVAX facility, and ensuring equitable global transfers of excess doses.\n- Ensure adequate access to international liquidity:\n  - Major central banks should provide clear guidance on future actions with ample time to prepare to avoid \"taper-tantrum\" kinds of episodes.\n  - Low-income countries will benefit from further extending the pause on debt repayments under the Debt Service Suspension Initiative and operationalizing the G20 Common Framework for orderly debt restructuring.\n  - A new allocation of the IMF’s Special Drawing Rights will provide needed liquidity protection in highly uncertain times.\n- Continue progress on resolving trade and technology tensions; cooperate on climate change mitigation, modernizing international corporate taxation, and measures to limit cross-border profit shifting, tax avoidance, and evasion.\n- A similarly ambitious effort at the multilateral level is needed to secure the recovery and build forward better.\n\nSource: Managing Divergent Recoveries — Gita Gopinath, April 6, 2021\n\n---\n\n\n References\n\n- World Economic Outlook\n- Debt Service Suspension Initiative\n- Special Drawing Rights\n\nSource: https://www.imf.org/en/blogs/articles/2021/04/06/blog-weo-ch1-global-prospects-policies"
    }
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    "Authors: Gita Gopinath",
    "Published: April 6, 2021",
    "Global growth is projected to be 6 percent in 2021 (0.5 percentage point upgrade) and 4.4 percent in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3 percent in 2020.",
    "The upgrades for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly a sizeable upgrade for the United States (1.3 percentage points), with the United States expected to grow at 6.4 percent in 2021.",
    "China is projected to grow in 2021 at 8.4 percent.",
    "Many other countries are not expected to return to pre-pandemic GDP until 2023.",
    "Additional fiscal support in large economies, particularly the United States, has further improved the outlook.",
    "Recoveries are diverging across and within countries, with economies that have slower vaccine rollout, more limited policy support, and greater reliance on tourism doing less well.",
    "The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be:",
    "An additional 95 million people are expected to have entered the ranks of the extreme poor in 2020 compared with pre-pandemic projections.",
    "Uneven impacts within countries: young and lower-skilled workers remain more heavily affected; women have suffered more, especially in emerging market and developing economies.",
    "The crisis has accelerated digitalization and automation; many of the jobs lost are unlikely to return, requiring worker reallocation across sectors with often severe earnings penalties.",
    "Swift policy action worldwide, including $16 trillion in fiscal support, prevented far worse outcomes; estimates suggest last year’s severe collapse could have been three times worse without such support.",
    "Because a financial crisis was averted, medium-term losses are expected to be smaller than after the 2008 global financial crisis, at around 3 percent; however, emerging markets and low-income countries are expected to suffer greater scarring given their more limited policy space.",
    "One in ten jobs may be at risk in many countries as exceptional measures such as moratoria on loan payments are withdrawn.",
    "Faster progress with vaccinations can uplift the forecast.",
    "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, potentially causing inflated asset valuations to unwind in a disorderly manner, tightening financial conditions sharply, and deteriorating recovery prospects—especially for some highly leveraged emerging markets and developing economies.",
    "Prioritize escaping the health crisis by prioritizing healthcare spending—on vaccinations, treatments, and healthcare infrastructure.",
    "Fiscal support should be well targeted to affected households and firms.",
    "Monetary policy should remain accommodative (where inflation is well behaved), while proactively addressing financial stability risks using macroprudential tools.",
    "Continue supporting economies with better-targeted measures to leave space for prolonged support if needed; tailor policies to the stage of the pandemic, the strength of the economic recovery, and structural characteristics of individual countries.",
    "As the pandemic recedes and labor markets normalize:",
    "As moratoria and exceptional supports are withdrawn, consider converting previous liquidity support (loans) into equity-like support for viable firms and develop out-of-court restructuring frameworks to expedite eventual bankruptcies.",
    "Devote resources to helping children catch-up on lost instructional time during the pandemic.",
    "Once the health crisis is over, focus on building resilient, inclusive, and greener economies:",
    "For economies with limited fiscal space, priorities include improving tax capacity, increasing tax progressivity (on incomes, property, and inheritance taxation), deploying carbon pricing, and eliminating wasteful expenditures.",
    "Anchor policies in credible medium-term frameworks and adhere to the highest standards of debt transparency to contain borrowing costs and eventually reduce debt and rebuild buffers.",
    "Work together to ensure universal vaccination:",
    "Ensure adequate access to international liquidity:",
    "Continue progress on resolving trade and technology tensions; cooperate on climate change mitigation, modernizing international corporate taxation, and measures to limit cross-border profit shifting, tax avoidance, and evasion.",
    "A similarly ambitious effort at the multilateral level is needed to secure the recovery and build forward better.",
    "[World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021)",
    "[Debt Service Suspension Initiative](https://www.imf.org/en/About/FAQ/sovereign-debt)",
    "[Special Drawing Rights](https://www.imf.org/en/Topics/special-drawing-right)"
  ],
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