IMF cuts global economy forecast amid Delta surge, vaccine divide

The International Monetary Fund (IMF) yesterday slightly revised down its global economic forecast amid the Delta variant-fueled Covid-19 surge, highlighting the 'great vaccine divide', supply bottlenecks and inflation risks.

"The global recovery continues but momentum has weakened, hobbled by the pandemic," IMF chief economist Gita Gopinath told a virtual press conference during the annual meetings of the IMF and the World Bank Group.

In its newly released World Economic Outlook (WEO), the IMF projected the global economy to grow by 5.9 per cent in 2021, down by 0.1 percentage points from July's forecast, while noting that the 'modest headline revision' for the global economy 'masks large downgrades' for some countries.

Noting that overall risks to economic prospects have increased and policy trade-offs have become 'more complex,' Gopinath said the outlook for the low-income developing countries, in particular, has 'darkened considerably' due to worsening pandemic dynamics.

Low-income developing countries are on track to grow by 3 per cent this year, down by 0.9 percentage point from July's forecast, the report showed.

Stressing that a 'dangerous divergence' in economic prospects across countries remains a major concern, Gopinath said these divergences are a consequence of the 'great vaccine divide' and large disparities in policy support.

"We are very concerned -- about the vaccine divide -- and we are doing everything that we can to make the case to be clear on the numbers, which are troubling,"  deputy director of the IMF's Research Department Petya Koeva Brooks said, adding that about 60 per cent of the population in advanced economies is fully vaccinated and about a third in emerging markets, whereas the corresponding number for low income countries is below five percent of the population.

The IMF urged the global community to step up efforts to ensure equitable vaccine access for every country, overcome vaccine hesitancy where there is adequate supply, and secure better economic prospects for all.

Recent pledges by China, the Group of Seven (G7) industrialised nations, and other countries in that direction are 'welcome' steps, though donations should be accelerated to rapidly fulfill the commitments, according to the report. "the advanced economies are on track to grow by 5.2 per cent this year, down by 0.4 percentage point from July's forecast, which reflects more difficult near-term prospects, in part due to supply disruptions."

The United States and the euro area are projected to see economic growth of 6 per cent and 5 per cent respectively.

While investors still expect recent price pressures to moderate and then gradually subside, they have also highlighted the possibility that supply chain disruptions and shortages of labor and materials may be 'more persistent than currently anticipated,' leading to an unmooring of inflation expectations, according to the IMF's Global Financial Stability Report released on Tuesday.

Looking ahead, the IMF urged central banks to provide 'clear guidance' about the future stance of monetary policy to avoid an unwarranted tightening of financial conditions and minimise the risk of market volatility.

The multilateral lender projects that headline inflation will likely return to pre-pandemic levels by mid-2022 for the group of advanced economies and emerging and developing economies. There is, however, considerable heterogeneity across countries with upside risks for the United States, Britain, and some emerging market and developing economies.

Emerging market and developing economies are projected to grow by 6.4 per cent in 2021, up by 0.1 percentage points from July's forecast, which is in part due to the upgraded projections for some commodity exporters on the back of rising commodity prices, the report added.