The International Monetary Fund on Tuesday stated that it expected global economic growth in 2021 to fall slightly below the 6 per cent in earlier projection.
The Managing Director of the IMF, Kristalina Georgieva, cited growing risks associated with debt, inflation and divergent economic trends in the wake of the COVID-19 pandemic as the basis for the downward review of the institution’s earlier projection.
According to her, the global economy was bouncing back, the IMF boss, however, pointed out that the pandemic continued to limit the recovery, with the main obstacle posed by the “Great Vaccination Divide” that has seen too many countries with too little access to COVID vaccines.
Georgieva, who raised these concerns in a virtual speech at Bocconi University in Italy, said next week’s updated World Economic Outlook would forecast advanced economies’ returning to pre-pandemic levels of economic output by 2022, but most emerging and developing countries needing “many more years” to recover.
She said: “We face a global recovery that remains ‘hobbled’ by the pandemic and its impact. We are unable to walk forward properly — it is like walking with stones in our shoes.”
According to her, the United States and China remained vital engines of growth, and Italy and Europe were showing increased momentum, but growth was worsening across other countries.
Georgieva noted that inflation pressures, a key risk factor, were expected to subside in most countries in 2022, but would continue to affect some emerging and developing economies.
She cautioned that a sustained increase in inflation expectations could cause a rapid rise in interest rates and tighter financial conditions.
The IMF chief pointed out that while central banks could generally avoid tightening for now, they should be prepared to act quickly if the recovery strengthened faster than expected, or risks of rising inflation materialised.
This is even as she maintained it was also important to monitor financial risks, including stretched asset valuations.
Georgieva further noted that with global debt levels now at about 100 per cent of world gross domestic product, many developing countries had very limited ability to issue new debt at favourable conditions,
The development finance experts also urged richer nations to increase delivery of COVID-19 vaccines to developing countries, remove trade restrictions and close a $20 billion gap in grant funding needed for COVID-19 testing, tracing and therapeutics.
According to her, failure to close the massive gap in vaccination rates between advanced economies and poorer nations could hold back a global recovery, driving cumulative global GDP losses to $5.3 trillion over the next five years, she said.
Georgieva said countries should also accelerate efforts to address climate change, ensure technological change and bolster inclusion – all of which could also boost economic growth.