IMF pegs 2021 global growth at 5.9%

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IMF Chief Economist Gita Gopinath presents the October 2021 World Economic Outlook.
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  • The predicted 5.9 percent growth is 0.1 percentage point less than the IMF’s July prediction
  • The IMF said this revision was due to supply disruptions for some and worsening pandemic dynamics for others

The International Monetary Fund on Tuesday, October 12, said in its October 2021 World Economic Outlook that the global economy was set to grow 5.9 percent in 2021.

This was a 0.1 percentage point lower than its June WEO prediction, it noted, adding that global growth would be 4.9 percent in 2022.

The IMF explained that the downward revision for 2021 “reflects a downgrade for advanced economies — in part due to supply disruptions — and for low-income developing countries, largely due to worsening pandemic dynamics.”

It added that this was partially offset by stronger near-term prospects among some commodity-exporting emerging market and developing economies.

However, the rapid spread of Delta and the threat of new variants of the novel coronavirus have “increased uncertainty about how quickly the pandemic can be overcome,” it said.

“Policy choices have become more difficult, with limited room to maneuver,” it noted.

The IMF also said inflation risks were skewed to the upside and could materialize if pandemic-induced supply-demand mismatches continued longer than expected

It could exacerbate matters if the damage to supply potential turned out worse than anticipated.

This, the IMF said, would lead to more sustained price pressures and rising inflation expectations that could prompt a faster-than-anticipated monetary normalization in advanced economies.

It also issued an advisory of sorts to central banks across the world, saying that although they can could generally look through transitory inflation pressures and avoid tightening until there was more clarity on underlying price dynamics, they should also be prepared to act quickly if the recovery strengthened faster than expected or risks of rising inflation expectations became tangible.

“In settings where inflation is rising amid still-subdued employment rates and risks of expectations de-anchoring are becoming concrete, monetary policy may need to be tightened to get ahead of price pressures, even if that delays the employment recovery,” it said.

The IMF also sounded a warning on what would need to be done in the post-pandemic recovery phase.

It said the recovery would need to include steps like reversing the pandemic-induced setback to human capital accumulation, facilitation of new growth opportunities related to green technology and digitalization, reducing inequality, and ensuring sustainable public finances.

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