The International Monetary Fund (IMF) released on Wednesday an updated report on the global economic outlook –as a part of its and the World Bank’s spring meetings activities– which revised up its projections for global growth in 2021.
In an exclusive interview, Ahram Online discussed with the head of the world economic studies division at the IMF's research department, the findings of the report and the key actors behind the expected improvement in the global economy in 2021 as well as the IMF’s expectations regarding global oil prices.
Nabar also said that IMF projects emerging markets’ and developing economies to grow to reach 6.7 percent in 2021, moderating to five percent in 2022.
Ahram Online: What are the key reasons behind the IMF's revising up of the global economic growth outlook in 2021, compared to October’s and January’s forecasts?
Malhar Nabar: We revised our forecast for growth this year because of three main factors: Additional policy support in a few large economies (for instance, the US); continued adaptation of economic activity to subdued mobility, which has led some sectors of the economy to perform better than we had previously expected; and the rollout of vaccines, which hold hope for a normalisation of contact-intensive activity.
However, there is high degree of uncertainty around this forecast - related to the pandemic - the impact of new variants of the virus and the speed of vaccine rollout. Beyond the health crisis, there is uncertainty about how financial conditions will evolve and how effective economic policy support will be in providing a bridge to a time when vaccines start delivering effective society-wide protection. Moreover, there has been a large accumulation of savings, particularly in advanced economies. How these savings are used – whether they are spent or instead used to repair balance sheets and pay back debt – will also affect the speed of recovery.
AO: The WEO report expects global growth to rebound to six percent during 2021, but to moderate to 4.4 percent in 2022. Could you explain why growth is expected to go down in 2022?
MN: Global growth is projected to moderate in 2022 as output gaps narrow and pandemic-related support policies unwind. This is a common pattern in recovery phases, as the initial strong rebound from the trough of the contraction gives way to a more moderate pace of expansion in later stages.
AO: To what extent are the US economic and fiscal stimuluses expected to play a role in the global recovery process and in supporting its economic growth in 2021 as well as over the medium term?
MN: The $1.9 trillion support package is expected to boost the level of US GDP by about five percent over 2021-2023 with significant spill overs to the rest of the world. This support will clearly be an important factor in the US and in global recovery however, the global growth forecast depends crucially on ensuring broad vaccine availability across all countries. This will require strong multilateral cooperation to ensure vaccine production and distribution is ramped globally, export restrictions on vaccines and vaccine inputs are avoided, the COVAX facility for procuring vaccines is fully funded and excess doses are re-distributed from those countries with surpluses to those that need them.
AO: What are your expectations for emerging markets and developing countries in terms of economic growth and the recovery process?
MN: We project that the emerging markets and developing economy group is to grow 6.7 percent in 2021, moderating to five percent in 2022. China - where effective containment measures, a forceful public investment response and central bank liquidity support have facilitated a strong recovery - needs to be looked at separately from other emerging market economies. Tourism-based economies within this group (such as Fiji, Seychelles, Thailand) face particularly difficult prospects considering the expected slow normalisation of cross-border travel.
The recoveries in these countries will vary, based on regional differences in the severity of the pandemic, economic structure (employment and GDP shares of contact-intensive sectors), exposure to specific shocks (for instance, due to reliance on commodity exports) and the effectiveness of the policy response to combat the fallout.
AO: How far is the delay in making vaccines available and the uneven deployment of them expected to affect the recovery process and economic growth in emerging markets and developing countries?
MN: As said, the recoveries in these countries will vary based on regional differences in the severity of the pandemic, economic structure (employment and GDP shares of contact-intensive sectors), exposure to specific shocks (for instance, due to reliance on commodity exports) and the effectiveness of the policy response to combat the fallout. Delays in vaccine rollout could setback recovery significantly, as we noted in our just-released World Economic Outlook report.
AO: What are the sectors expected to drive the growth and recovery in emerging markets and developing countries?
MN: What we have observed thus far is that manufacturing and industrial production have recovered at a faster pace than services. But, as vaccines become more widely deployed, this will allow contact-intensive activity including tourism, travel, entertainment, hospitality to come back. Nonetheless, there is a lot of uncertainty around the pace at which this will occur.
The pandemic has likely accelerated the forces of digitalisation and automation. Sectors that are more vulnerable to these developments, including retail, could see more persistent effects than others.
AO: What are your expectations for global oil prices in 2021 and over the medium term?
MN: In our report (which has a data cut-off date in early March), oil prices are projected to grow by 30 percent in 2021 from their low base in 2020, in part reflecting the OPEC+ supply curbs. Future markets suggest oil prices will decline towards $50 per barrel in 2025.
AO: At what time can we say that the world has put the pandemic and its severe repercussions under control?
MN: As I said, there is a lot of uncertainty around the path of the pandemic. In our baseline, we assume that local transmission of the virus will be brought to low levels in most countries by the end of 2022. Some countries will get there faster than others because of better access to vaccines, therapies and stronger precautions (social distancing, mask usage).
Of course, if the pandemic turns out to last longer than we are assuming, this would lead to worse growth outcomes than we currently forecast.