IMF forecast for the world economy: Global growth with great inequality

The IMF has significantly raised its economic forecast for the industrialized countries. In contrast, it has been lowered for poorer countries. Access to corona vaccines is therefore a growth accelerator and brake.

The global economy is recovering from the Corona crisis, but inequality continues to rise, according to the International Monetary Fund (IMF): According to a new forecast, the growth prospects for rich industrialized countries, including Germany, have improved again, as have the prospects for many poorer development – and emerging markets, on the other hand, have deteriorated.

The economic outlook for many countries now depends directly on their access to corona vaccines, explained the IMF. In addition, poorer countries can only support the labor market and the economy to a very limited extent.

Access to corona vaccines as a growth indicator

The global economy is forecast to grow by six percent this year. This corresponds to the previous outlook from April, but the composition of the growth has changed: The plus for the industrialized countries should be 5.6 percent, 0.5 percentage points more than assumed in April. In contrast, the forecast for the economies of developing and emerging countries for 2021 has been lowered by 0.4 percentage points to 6.3 percent.

“Faster than expected vaccination campaigns and a return to normal have led to upgrades, while lack of access to vaccines and repeated waves of Covid-19 have resulted in downgrades in some countries, particularly India,” said IMF chief economist Gita Gopinath. “The global economic recovery is continuing, but with a wider gap between developed economies and many emerging and developing countries,” she said. According to the IMF, the pattern will continue in 2022.

Growth forecast for 2022 increased to 4.9 percent

The global economy is expected to grow by a total of 4.9 percent in the coming year, 0.5 percentage points more than assumed in April. The development is to be driven by stronger growth in the industrialized countries (4.4 percent), primarily due to higher government spending in the USA and the EU. The gross domestic product (GDP) of the emerging and developing countries, in turn, is expected to grow by 5.2 percent, an increase of 0.2 percentage points compared to the April estimate. The global economic recovery “is not assured until the global pandemic has repulsed,” said Gopinath.

For example, the IMF raised the growth forecast for the USA, the world’s largest economy, to 4.9 percent for the coming year. Germany’s economy is also expected to grow faster in 2022: After a forecast of 3.4 percent in April, the IMF is now assuming growth of 4.1 percent. For this year, a further increase of 3.6 percent is expected.

The comparatively high IMF growth forecast for the global economy is partly due to the fact that many countries experienced a recession of historic proportions in the previous year due to the Corona crisis and are now catching up again. According to the IMF, the global economy slumped 3.2 percent last year due to the pandemic.

Higher inflation and rising consumer prices

Meanwhile, the IMF assumes that the current higher inflation rates in the industrialized countries will probably level off again in the coming year at the level from before the pandemic. Many of the factors driving prices are temporary and the labor market situation is less favorable in most countries than it was before the pandemic. “However, because of the unprecedented nature of this recovery, that assessment is fraught with significant uncertainty,” Gopinath said. Sustained disruptions in global supply chains and a sharp rise in property prices are factors that could lead to sustained higher inflation, warned Gopinath.

Nevertheless, the IMF initially expects consumer prices to rise. According to the IMF, prices in the industrialized countries are likely to rise by an average of 2.4 percent this year. In April he had only assumed 1.6 percent. For 2022, the forecast has been increased from 1.7 to 2.1 percent.

IMF warns against a quick departure from the cheap money policy

The IMF warned the central banks not to cut their support for the economy with cheap money too soon in view of rising inflation rates. “Central banks should generally overlook temporary inflationary pressures and avoid tightening until there is more clarity about the underlying price dynamics,” it said. This must be well explained by the monetary authorities so that inflation expectations do not solidify.

Because of the Corona recession, central banks such as the ECB continued to loosen their monetary policy worldwide last year, for example by purchasing securities worth billions. This pumps money into the economy, which should stimulate investment and consumption and help the economy out of the Corona Valley.

Asian countries as losers in growth

The losers in the latest forecast include the states of Asia, which recently had to wrestle with a new corona wave. In addition to India, the IMF also counts Malaysia, Thailand, Vietnam, the Philippines and Indonesia in this category. Growth in India, for example, is expected to be around 9.5 percent this year as a result of the dramatic corona wave – and thus three percentage points less than in the April forecast.

The growth forecast for China has also been lowered, but mainly due to decreasing government support for the economy. The second largest economy is expected to grow by 8.1 percent this year. Next year there should be an increase of 5.7 percent.