The IMF expects the United States and China to be by far the most effective in leading their economies through the pandemic, leaving Europe and other emerging markets behind in their wake.
In its updated forecast for the global economy, the fund predicts that by 2022, recoveries in the United States and China will not leave their economies more than 1.5% smaller than expected before the pandemic.
Other advanced economies will still be 2.5% below their pre-pandemic trajectory, while emerging economies excluding China will be 8% smaller in 2022 than forecast in forecasts released earlier. exactly one year.
But the reasons for the expected success in China and the United States, the world’s two largest economies, are widely divergent.
China has successfully implemented what the IMF has called “effective containment measures” to aggressively curb the spread of Covid-19. In contrast, the United States has struggled to contain the virus – which continues to spread at a breakneck pace – but its government has spent more on economic stimulus than almost any other country, earning praise from the fund for its approach. decisive.
Even before the Biden administration’s proposed additional $ 1.9 billion fiscal stimulus, the IMF said the United States’ relative success against the euro area was in part due to European countries locking in their economies more closely to contain the virus and in part because their economies were less flexible and able to adapt. locks.
In general, the IMF’s forecast showed better performance in countries with better access to vaccines and those most willing to spend more on stimulus measures, which it did not predict for inflation.
IMF chief economist Gita Gopinath said: “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 this to happen “.
The fund’s conclusion is that overall, the race is likely to be won by humans rather than the virus and reinforces the emerging new political consensus that the best economic outcomes will come where countries put aside concerns about the virus. inflation and the possibility of an excessive stimulus.
The new IMF forecast divides the world’s economic outlook into three broad groups.
China and the United States would recover almost all the ground lost due to the Covid-19 crisis. Other advanced countries were part of a middle group, with deeper economic impact and slower recoveries, which the IMF said could be accelerated with greater political support.
Emerging economies, except China, have been hit hardest and will suffer the most lasting damage from the crisis, the IMF said. Containing the virus had not been as effective as in China, while oil exporters and tourism-based economies were particularly hard hit.
“Nearly 90 million people are likely to fall below the extreme poverty line in 2020-2021,” the IMF said.
With unemployment expected to remain at higher than normal levels around the world, there was little immediate danger of inflation and price increases were expected to average around 1.5% in advanced economies, below target levels, while being below historical averages by around 4%. in emerging economies.
For a sustainable and widespread recovery, the world must contain the coronavirus, said Ms Gopinath, allowing the poorest countries to have access to vaccines in addition to the rich world.
Welcoming the decision of the United States to join the Covax facility to provide the funding and logistics necessary to vaccinate against Covid-19 in the poorest countries, she said, “the health and economic arguments for this are overwhelming ”.
But she added that the new variants of the coronavirus were a reminder that the economic damage from the pandemic was still far from over and would not go away until the virus was controlled everywhere.
“Faster progress in ending the health crisis will cumulatively increase global income by $ 9 billion between 2020 and 2025, with benefits for all countries, including about $ 4 billion for advanced economies,” said Mrs. Gopinath.