Global economic recovery is stronger than expected but risks remain, IMF official says

The prospects of a stronger global economic recovery are emerging, driven by Covid-19 vaccines and the new stimulus measures in the US but significant risks remain, according to a senior official from the International Monetary Fund.

Countries are currently rolling out coronavirus vaccines to stop the spread of the pandemic while the US, the world's largest economy, also approved a $1.9 trillion stimulus package to support its economy earlier this month.

"In January, we projected 2021 global growth at 5.5 per cent, but prospects of a stronger recovery are emerging, because of additional fiscal stimulus, especially in the US and the prospects of broader vaccination," Geoffrey Okamoto, first deputy managing director at IMF, told the China Development Forum on Saturday.

However, significant risks remain due to the unequal distribution of vaccines and the spread of resistant mutations that could delay recovery, he added.

"Access to vaccines remains very uneven, both across advanced and emerging economies. Low-income countries might not see significant vaccination well into 2022, and that is a problem.

“There are also uncertainties about the effectiveness of policy actions and differences in what countries can do. Some countries face limited fiscal space and higher debts. While China still has some room for manoeuvre, many others, especially low-income countries, do not.”

More than 430 million vaccines have been administered in 133 countries at a daily rate of 10 million doses, according to Bloomberg's vaccine tracker. In the US, more Americans have received at least one dose than have tested positive for the virus since the pandemic began.

China "has already completed its recovery, returning to its pre-pandemic growth levels ahead of all large economies”, Mr Okamoto said.

However, growth in the world’s second-biggest economy “still lacks balance, with private consumption lagging investment”.

Outside of China, there are worrying signs that the gap between advanced economies and emerging markets is growing, he said.

“We project that cumulative income per capita in emerging and developing countries, excluding China, between 2020 and 2022 will be 22 per cent lower than what it would have been without the pandemic.”

“That will translate into close to 90 million people falling below the extreme poverty threshold since the pandemic started.”

Many emerging markets witnessed large outflows in the early part of this month – a spillover effect from rising bond yields in the US and other developed markets, the Institute of International Finance said in a note last week.

"The fast reaction by many central banks helped to contain this effect greatly but our data shows that the tightening is still ongoing," the IIF said.

Tighter financial conditions could exacerbate vulnerabilities in countries with high public and private debt levels, Mr Okamoto said.

"We have seen recent increases in bond yields as the growth outlook of some advanced economies improves, leading markets to expect an earlier withdrawal of monetary stimulus."

Countries should "maintain economic support and calibrate it to the stage of their recovery and the pandemic" to overcome current challenges, Mr Okamoto said.

“Where the pandemic continues, the priority is to protect lives and livelihoods. As it wanes, support should become more targeted, focusing on mitigating scarring, supporting the reallocation of resources, and ensuring that the post-pandemic economy is an inclusive and sustainable one.”

The IMF has expanded concessional financing and provided debt relief to many of its poorest members to help them cope with the crisis. The fund's members are currently considering a new SDR (special drawing rights) allocation to address the need for long-term reserves, the official said.

Governments should also focus on ending the pandemic "swiftly" and ramp up vaccine production, he added.

"We must ensure that low-income countries have the financing to procure and distribute vaccines."

Efforts are being made to provide poorer nations with vaccines through the Covax initiative run by the Gavi vaccine alliance. So far, more than 30 million vaccines have been distributed to 54 countries by the organisation.