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.

IMF forecasts zero per cent economic growth last fiscal year

Nepal is growing at zero per cent in the last fiscal year as Covid-19 continues to wreak havoc on the economy, according to the latest forecast of the International Monetary Fund (IMF).

“Nepal’s economic growth remained flat in the last fiscal year 2019-20,” the World Economic Outlook (WEO) released today by the IMF reads.

Though, the World Bank has forecast 0.6 per cent economic growth, and Central Bureau of Statistics (CBS) has forecast 2.27 per cent economic growth, the IMF has downgraded Nepal’s growth forecast to zero percent for the last fiscal year. The IMF growth projection of Nepal is far lower than the government’s target to achieve seven per cent of growth in the current fiscal year.

The IMF has, however, projects that Nepal’s economy would grow by 2.5 per cent in the current fiscal year 2020-21. 

The IMF has also projected a deep recession in 2020. “Global growth is projected to be -4.4 per cent, an upward revision of 0.8 percentage points compared to its June update,” the report reads.

“The upgrade owes to somewhat less dire outcomes in the second quarter, as well as signs of a stronger recovery in the third quarter, offset partly by downgrades in some emerging and developing economies,” said the IMF’s chief economist Gita Gopinath.

Nepal to grow by 6.5 per cent: IMF

The latest edition of the World Economic Outlook (WEO) from the International Monetary Fund (IMF) has projected Nepal’s economy to grow by 6.5 per cent in the current fiscal year 2018-19.
Though the government has kept economic growth target at 8 per cent for the current fiscal year, on Sunday, the World Bank projected Nepal's economy to grow by 6 per cent in the current fiscal year 2018-19, while the Asian Development Bank (ADB) – in the first week of April – projected Nepal’s economy to grow by 6.2 per cent in the current fiscal year.
According to the report released today during the ‘2019 Spring Meetings of the World Bank (WB) and the International Monetary Fund (IMF)’, the gross domestic product (GDP) of Nepal is expected to grow by 6.5 per cent in the current fiscal year and 6.3 per cent in the next fiscal year 2019-20.
The projection is a reiteration to the recent forecast of its ‘Article IV mission’ that visited Nepal in December last year. Earlier, in its Article IV mission’s report, the IMF had projected the growth to reach 6.5 per cent supported by greater political stability and a more reliable supply of electricity.
But the IMF mission had cautioned Nepal about the risk of higher growth, stating that the current economic expansion also comes with some challenges that need to be carefully managed. The IMF team had proposed a measured tightening of policies to safeguard macroeconomic and financial stability.

Economic growth projection for Nepal – IMF: 4 per cent, ADB: 4.8 per cent and World Bank: 5 per cent against government target of 6.5 per cent

The International Monetary Fund (IMF) today projected 4 per cent economic growth for Nepal, whereas the World Bank (WB) projected 5 per cent for the current fiscal year.
The IMF and the World Bank forecast comes almost a fortnight after another multilateral development partner – the Asian Development Bank (ADB) – projected a growth of 4.8 per cent for the current fiscal year for Nepal.
However, the government has targeted to achieve an economic growth of 6.5 per cent in the current fiscal year.
Releasing the World Economic Outlook (WEO) today in Washington, DC, amid a press meet, the IMF made a forecast that Nepal’s gross domestic product (GDP) will rebound by 4 per cent only.
IMF has further lowered the economic growth forecast by 0.5 percentage points to 4 per cent from its April forecast, when it had claimed Nepal’s growth would rebound by 4.5 per cent in 2017.
The Fund had projected the Nepal economy to grow only by 0.5 per cent in the last fiscal year 2015-16, when the World Bank had estimated Nepal's growth at 0.6 per cent.
However, the Central Bureau of Statistics (CBS), has estimated Nepal saw an economic growth of 0.77 per cent in the last fiscal year, experiencing its slowest growth in the last 14 years.
In April, the IMF officials had said that they expected there was a good chance for growth to pick up once reconstruction started in earnest and border conditions normalised. The devastating 2015 earthquakes and economic blockade imposed by India had pushed down Nepal’s economic growth by 0.77 per cent in the fiscal year 2015-16.
However, IMF’s downward revision of growth forecast comes at a time when reconstruction has failed to gather momentum as expected. "Weak capital spending, slowing remittances, political uncertainty and other number of head winds that we see in Nepal have led us for the conservative projections,” a deputy director at the Research Department of IMF Gian Maria Milesi-Ferreti said.
Meanwhile, the World Bank was a bit more optimistic about Nepal’s economic growth in a separate report by the World Bank released today, the multilateral development partner projects an economic growth of 5 per cent in the current fiscal year. The World Bank has attributed improvement in the agriculture, construction and reconstruction to cause a rebound in the growth rate.
"Agriculture and construction are expected to improve on the account of a good monsoon as well as increased disbursements of housing reconstruction grants, the report '‘Investment Reality Check’ reads. "Coupled with increased government spending, this is expected to push the fiscal year 2016-17 growth to 5 per cent and to remain in line with potential thereafter."
"The rebound in growth is on the back of a normal monsoon that will boost agricultural output and supported by increased investment – both public and private – as the political process stabilises and earthquake recovery gathers speed. "Manufacturing in particular is expected to get some boost starting from the current fiscal year with the apparels and garment industry getting a duty free access in the US market,” it adds.
Nepal has had a difficult year due to the earthquake, border disruptions with India, and reduced remittances, the World Bank noted.
However, Nepal’s projected growth rate is far below the growth rate projected for the South Asia region. Led by solid performance in India, the economic growth is expected to gradually accelerate to 7.3 per cent in the current fiscal year from 7.1 per cent in the last fiscal year, according to the World Bank report.
According to the twice-a-year South Asia Economic Focus, the region remains a global growth hotspot and has proven resilient to external head winds such as China’s slowdown, uncertainty around stimulus policy in advanced economies, and slowing remittances. The main challenges remain domestic, and include policy uncertainty as well as fiscal and financial vulnerabilities.
“A reality check reveals that private investment – a key future growth driver across South Asia – is yet to be ignited to sustain and further increase economic growth,” said World Bank South Asia Region’s vice president Annette Dixon. "Countries will need to activate the full potential of private investment and exports to accelerate economic activity further, reduce poverty and boost prosperity."
Given its weight in the region, India sets the pace for South Asia as a whole. Its economic activity is expected to accelerate to 7.7 per cent in 2016-17, after maintaining a solid 7.6 per cent in 2015-16. "This performance is based on solid growth contributions from consumption, boosted by normal monsoon and civil service pay revisions. Over the medium term, accelerated infrastructure spending and a better investment climate may help increase private investment and exports.
A reality check on the state of private investment in South Asia shows that the region has fallen short of expectations. Mobilising domestic savings remains key at the aggregate level.
However, remittances and foreign direct investment prove very effective on a per-dollar basis, and the region should make the most of them.
India can further rely on public infrastructure to crowd-in private investment, while finance may constrain investment in Pakistan. The business cycle matters all across the region, providing a potential accelerator from GDP growth to investment growth. Ultimately, the investment climate sets the broader stage. “Alas, most South Asian economies suffer from a challenging business environment and some are subject to broader uncertainty and insecurity, which is detrimental to investor confidence,” it said.  
“Political economy risks are widespread across South Asia, and uncertainty will need to be managed, particularly with a view to creating an attractive environment for domestic and foreign investment alike,” World Bank South Asia Region’s chief economist Martin Rama, said. "Delivering the necessary energy, infrastructure, and regulatory improvements remains critically important to increasing private investment, thus boosting job creation and reducing poverty."