Despite recent vaccine approvals, lifting hopes of a turnaround in the pandemic later in 2021, renewed waves and new variants of the Covid-19 virus pose concerns for the outlook global economic outlook, according to the International Monetary Fund (IMF).
Amid exceptional uncertainty, the global economy is projected to grow 5.5% in 2021 and 4.2% in 2022, it said in a report on Tuesday (26 January).
The 2021 forecast is revised up 0.3 percentage point relative to the previous forecast in October 2020, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies, the IMF said.
“In just three months since we released our last forecast in October, recorded Covid-19 deaths have doubled to over 2 million, as new waves have lifted infections past previous peaks in many countries.”
In these same three months, multiple vaccines have seen unexpectedly strong success and some countries have started ambitious vaccination drives.
“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens. There remains tremendous uncertainty and prospects vary greatly across countries,” the financial institution said.
The IMF said that there is a great deal of uncertainty around its forecast. “Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes.
“If downside risks were to materialise, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide.”
Emerging market and developing economies are also projected to trace diverging recovery paths, the IMF said.
“Considerable differentiation is expected between China—where effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery—and other economies.
“Oil exporters and tourism-based economies within the group face particularly difficult prospects considering the expected slow normalisation of cross-border travel and the subdued outlook for oil prices.”
The pandemic, it said, is expected to reverse the progress made in poverty reduction across the past two decades. Close to 90 million people are likely to fall below the extreme poverty threshold during 2020–21.
Across regions, vulnerabilities, economic structure, and pre-crisis growth trends, together with the severity of the pandemic and the size of the policy response to combat the fallout, shape recovery profiles, the IMF said.
South Africa was revised to a contraction of 7.5% in 2020, and is forecast to grow at 2.8% in 2021, slipping to 1.4% in 2022.
The IMF last year approved $4.3 billion in emergency financial assistance under the Rapid Financing Instrument (RFI) to support the South African authorities’ efforts in “addressing the challenging health situation and severe economic impact of the Covid-19 shock”.