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World economic growth 'a race between a mutating virus and vaccinations' – IMF - Pensions & Investments

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Future world economic growth depends on the outcome of the race between the coronavirus and vaccinations, the International Monetary Fund warns.

In its latest World Economic Outlook, the IMF revised upward projections for global growth in 2021, to 5.5% up from 5.2% in its October forecasts.

The upgrade "reflects the positive effects of the vaccine success we saw towards the end of last year, and the additional policy support that was provided in some countries," said Gita Gopinath, chief economist and director of the research department, in a video accompanying the update. However, that positivity is partially offset by the resurgence of the virus in several countries and subsequent containment measures, "which are having a negative effect on activity."

The world is "in a race between a mutating virus and vaccinations, and a lot depends on the outcome of this race," Ms. Gopinath added. Should better news come about the vaccine with a faster rollout, things will improve. But mutations that hinder the vaccine and further resurgences could have a negative impact.

Ms. Gopinath said a lot also depends on policy support remaining in place. "If things go bad and financial conditions worsen, that would have a big knock-on effect because we are living at a time of very high levels of debt in the world," she said.

The IMF's forecast for 2022 growth is 4.2%. A forecast was not made in October. The IMF estimated that global gross domestic product shrunk by 3.5% in 2020. Its October forecast was a 4.4% contraction.

Advanced economies are projected to grow 4.3% in 2021 and by 3.1% in 2022. The October projection was 3.9% growth in 2021. The 2020 estimate for advanced economy contraction was 4.9%.

The U.S. is expected to grow by 5.1% this year, up from a 3.1% projection in the October forecast, and by 2.5% in 2022. U.S. GDP is estimated to have shrunk by 3.4% last year.

Eurozone economies, which are estimated to have contracted by 7.2% in 2020, are expected to grow by 4.2% in 2021 — down from a 5.2% projection in October — and by 3.6% in 2022. The U.K. is also expected to grow, albeit at a slower rate than predicted in October, by 4.5% compared with a 5.9% forecast previously. In 2022, U.K. GDP is expected to grow by 5%. The 2020 estimate is -10%.

Emerging markets are expected to grow by 6.3% in 2021 and 5% in 2022, with the estimate for this year up from 6% in the October projection. The IMF estimates that 2020 GDP contracted by 2.4%.

China, however, is estimated to have grown by 2.3% in 2020. The 2021 forecast is 8.1% growth — down slightly from 8.1% in the previous edition of the outlook — and China is expected to grow 5.6% in 2022.

The IMF recommended that the rollout of vaccinations should be accelerated in individual countries and made available across the world. Further, "fiscal policy should continue to provide effective support until we have a durable recovery, and monetary policy should remain accommodative as long as inflation is not at risk," Ms. Gopinath said.

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