The International Monetary Fund (IMF) has upgraded its growth outlook for the global economy and expects economic activity to grow by 6% this year, following a -3.3% drop in 2020 caused by quarantines to contain the COVID-19 pandemic.
U.S. tops growth list
According to the IMF, global growth will be driven by advanced economies, which will see their Gross Domestic Product boosted by the fiscal stimuli put in place by governments. Although the recovery during the second half of 2020 exceeded the IMF’s expectations, economic activity continues to be below its pre-pandemic levels.
For the United States, its economy is expected to grow by around 6.4%, making it the fastest-growing advanced economy during 2021. The Eurozone is expected to have more modest growth at 4.5%, led by Spain, France, Malta, Portugal, Ireland, and Slovakia.
Despite the high growth expected for the United States, it is estimated that India and China will be the economies with the highest growth during 2021 with 12.5 % and 8.4 % respectively.
With respect to Latin America, a 4.4 % growth is expected for South America, around 5.6 % for Central America, and 3.3 % for the Caribbean countries.
IMF: The consequences of the pandemic will be felt until 2022
The IMF warns that its projections are still surrounded by high uncertainty, as the COVID-19 pandemic is not over and economies may be subject to further closures and quarantines in the future, despite the fact that the vaccination process worldwide is already underway.
Europe and some regions in Latin America have announced new quarantines to contain the third peak of infections, which will negatively impact the economy.
The IMF also warns that economic expansion will depend, to a large extent, on the effectiveness of the vaccination process and expresses particular concern about the distribution of the vaccine in the countries of the southern hemisphere, which have fewer resources and poorer health systems than their American and European counterparts.
Although developed economies have had an accelerated inoculation development, lower-income countries will be completing vaccination by 2022. In this sense, the entity recommends increasing the financing of the COVAX agreement (which seeks to ensure an equitable supply of the vaccine in all countries), so that the procedure can be accelerated.
The IMF recommends the continuation of the expansionary fiscal policy to contain the pandemic crisis
The high levels of indebtedness in the world economy will restrict the ability of governments to pursue public policies in the future, so the priority must be focused on exiting the pandemic quickly.
In many countries, labor markets are affected by high unemployment rates, so one of the priorities for the international entity is to place the millions of people who lost their jobs in more productive sectors of the economy.
In addition, economies will need to increase public spending on productive projects, as well as tax progressivity in order to boost such spending. Nations must ensure that they do not cut off the flow of liquidity too quickly in order to avoid increasing interest rates on debt and causing panic in the financial markets.
Finally, the IMF has also advocated temporarily suspending debt servicing for lower-income countries so that they have the fiscal capacity to meet the cost of the pandemic.