IMF Raises Growth Forecasts for Rich Countries, Lowers for Developing Countries

The International Monetary Fund  (IMF) has maintained its global growth forecast at six percent for 2021, while increasing prospects for the U.S. and other leading economies, and lowering them for developing countries struggling with a rising number of coronavirus infections.

The difference between these two groups of countries is largely based on better access to COVID-19 vaccines and ongoing fiscal support in advanced economies, while those in development face challenges on both fronts, the IMF stated.

– Nearly 40 percent of the population in advanced economies is fully vaccinated, compared to 11 percent in developing markets, and a small fraction in low-income developing countries – said Gita Gopinath, the IMF’s chief economist.

– Faster-than-expected vaccination coverage and a return to normalcy have led to growth, while lack of access to vaccines and new pandemic waves of COVID-19 in some countries, particularly India, have led to declines – added Gopinath.

The IMF has significantly raised its forecasts for the U.S., now expecting it to grow by seven percent in 2021 and 4.9 percent in 2022, which is 0.6 and 1.5 percentage points higher than the April forecasts. The forecasts assume that the U.S. Congress will approve President Joe Biden’s proposal for approximately $4 trillion in spending on infrastructure, education, and family support.

Positive spillovers from the U.S. spending plan, along with expected progress in the number of vaccinated against COVID-19, increase the IMF’s global growth forecast for 2022 to 4.9 percent, which is 0.5 percentage points higher than in April.

The Fund has raised its forecasts the most for the United Kingdom, increasing its growth estimate for this year by 1.7 percentage points to seven percent.

For the eurozone, the Fund predicts a significantly smaller increase of 0.2 percentage points for 2021, while Japan’s forecast has been lowered by 0.5 percentage points, a result of a higher number of infections and stricter restrictions in the first half of the year.

The IMF forecasts that the eurozone economy will grow by 4.6 percent in 2021 and 4.3 percent in 2022, while Japan’s economy will grow by 2.8 and three percent.

The IMF has also assessed the growth rates of leading eurozone economies. Germany’s economy is expected to grow by 3.6 percent in 2021 and 4.1 percent in 2022, France’s by 5.8 and 4.2 percent. Italy’s economy is expected to grow by 4.9 and 4.2 percent, and Spain’s by 6.2 and 5.8 percent.

India, which has struggled this year with a massive wave of coronavirus infections, has seen its growth forecasts cut the most, by three percentage points, to 9.5 percent in 2021. The IMF has also lowered its forecast for China in 2021 by 0.3 percentage points, citing a reduction in public investment and overall fiscal support.

The IMF has also reduced prospects for Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, where a recent rise in COVID-19 infections is affecting activities. The Fund has forecast that Asian developing countries will grow by 7.5 percent this year, which is 1.1 percentage points lower than the April forecasts.

Forecasts for low-income countries have been reduced by 0.4 percentage points  in 2021, with the Fund citing slow vaccination coverage as the main obstacle to their recovery.

The IMF stated that other negative risks remain significant globally, including the possibility that new, highly contagious strains of the coronavirus could lead to new movement restrictions and reduced economic activity.

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