The global economy is on “firmer footing”, supported by $16 trillion in fiscal support and rapid Covid-19 vaccination campaigns, according to the International Monetary Fund.
As a result, the fund is set to upgrade its growth forecast for the world economy for this year and 2022.
The IMF, which in January forecast global growth of 5.5 per cent this year, said the pace of recovery was different for developed and emerging economies, fuelling uncertainty.
“We now expect a further acceleration, partly because of additional policy support – including the new fiscal package in the US – and partly because of the expected vaccine-powered recovery in many advanced economies later this year,” said the fund's managing director Kristalina Georgieva on Tuesday.
"This allows for an upward revision to our global forecast for this year and for 2022, as you will see in our World Economic Outlook next week."
Mass inoculation programmes have been introduced worldwide to limit the spread of the pandemic, which pushed the global economy into its deepest recession since the 1930s last year.
Global trade has since recovered, with faster-than-expected growth in China and other markets such as the US improving the outlook.
This recovery would not have been possible without “exceptional measures” from governments in the form of $16tn in fiscal support, including a $1.9tn pandemic relief package from the Biden administration this month, said Ms Georgieva.
Significant liquidity injections by central banks also helped to put a floor under the global economy, she said.
“Without these synchronised measures, the global contraction last year would have been at least three times worse. Just think about it – this could have been another Great Depression,” said Ms Georgieva.
While the overall outlook has brightened, recovery prospects are “diverging dangerously” – not only within nations but also between countries and regions.
“In fact, what we see is a multi-speed recovery, increasingly powered by two engines – the US and China,” she said.
"They are part of a small group of countries that will be well ahead of their pre-crisis gross domestic product levels by the end of 2021. But they are the exception, not the rule.”
The cumulative loss in per capita income, relative to pre-crisis projections, will be 11 per cent in advanced economies by next year. For emerging and developing countries excluding China, the loss will be 20 per cent.
“This loss of income means millions of people will face destitution, homelessness and hunger,” said Ms Georgieva.
“Indeed, one of the greatest dangers facing us is extremely high uncertainty.”
There could also be additional pressure on vulnerable emerging markets and poor and fragile states that have limited fiscal firepower to fight the crisis, she said.
Poor countries will have to use about $200 billion over five years to fight the pandemic and will require another $250bn to return them on the path of growth, said Ms Georgieva as she cited new IMF research.
However, these countries will be able to cover only a portion of that amount on their own. Nations in distress have received $107bn in assistance from the IMF under the G20 Debt Service Suspension Initiative.
The fund’s members are evaluating a plan to come up with as much as $650bn in additional reserve assets to help developing economies cope with the pandemic, said Ms Georgieva.
The fund expressed its strong support for a proposal to extend the G20 initiative, which has so far provided $5.7bn in relief to debt-laden countries, to the end of this year.
This is currently “under consideration by G20 members [and] I hope they will say yes to that”, she said.
Ms Georgieva also said countries need to continue adopting monetary accommodation and targeted fiscal measures to support vulnerable households and viable companies amid the pandemic.
There should also be additional support for small and medium enterprises through equity injections.
“SMEs are the world’s biggest employer. Yet, our research shows that the share of insolvent SMEs could rise sharply this year as support is scaled back – threatening one in 10 jobs in this vital sector,” she said.
