IMF Boosts World Growth Outlook as Vaccines Outweigh Uncertainty

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(Bloomberg) -- The International Monetary Fund raised its forecast for global growth this year, betting the rollout of coronavirus vaccines and more fiscal stimulus will offset the immediate challenge posed by the resurgent pandemic.

Global gross domestic product will soar 5.5% this year, faster than the 5.2% projected in October, the fund said Tuesday. It credited improvement in the U.S. for much of the upgrade, which was offset by cuts to its predictions for the euro area and U.K.

Such an expansion would match 2007 as the best in four decades of data and follow an upwardly revised 3.5% contraction last year, which would still be the worst peacetime decline since the Great Depression. The IMF projected a 4.2% global expansion for 2022.

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” IMF Chief Economist Gita Gopinath wrote in a blog post accompanying the World Economic Outlook.

The fund sees major central banks holding their policy-rate settings through 2022, with financial conditions remaining at current levels for advanced economies and improving for emerging-market and developing nations.

The U.S. saw one of the biggest upgrades after approving a $900 billion relief plan. President Joe Biden is also seeking $1.9 trillion in additional aid. The IMF forecasts the world’s largest economy may grow 5.1% this year, versus 3.1% in October.

Japan, which has announced its own stimulus of more than $700 billion, also saw a significant upward revision. The fund now projects 2021 economic growth at 3.1% compared with 2.3% previously.

Those upbeat outlooks contrast with Europe, where a deluge of cases has spurred new restrictions. The euro-area growth forecast was cut by a full percentage point, to 4.2%, on the expectation that the cooling at the end of last year will continue. The U.K. was cut by almost a point and a half to 4.5%.

Read more: Alternative data show growth stumble on virus fear

Overall, advanced economies will see output losses compared to pre-pandemic projections that are relatively smaller than elsewhere thanks to fiscal and monetary policy support and earlier, widespread access to vaccines.

The projections assume broad vaccine availability in advanced economies and some emerging markets this year and across most countries by the second half of next year. They also incorporate potential new lockdowns before inoculation is widespread, and that social distancing continues until the pandemic is tamed.

Read more: Why slow vaccination may delay the world’s recovery

Still, forecasters face many unknowns. They include how restrictions to curb infection affect the economy before widespread inoculation, how vaccine rollout expectations and policy support influence activity, and changes in financial conditions and commodity prices.

For global trade, the IMF sees import and export volumes rising by 8.1% this year, slightly less than the 8.3% increase seen in October, after an estimated 9.6% decline last year.

The IMF will follow the release of the economic forecasts this week with an updated Global Financial Stability Report on Wednesday and an update to its Fiscal Monitor on Thursday.

Other highlights:

• 2021 China growth estimate eased to 8.1% from 8.2%, with India’s lifted to 11.5% from 8.8%
• Canada’s projection for this year was cut to 3.6% from 5.2
• The U.S. and Japan will regain their end-2019 activity levels in the second half of this year, while the euro area and U.K. will remain below those levels into 2022
• Global economy seen losing $22 trillion in output from 2020-2025 relative to pre-pandemic projected levels
• More than 150 economies are expected to have per-capita income levels in 2021 that are below 2019, and about 110 economies in 2022
• Nearly 90 million people are likely to fall into extreme poverty by year-end
• Social unrest amid higher inequality or unequal vaccine access could further complicate the recovery
• World leaders should work together closely to speed vaccination in nations with low health-care capacity and provide debt relief for low-income and developing countries with unsustainable burdens

©2021 Bloomberg L.P.