The likely rise in the US interest rates could affect the Middle East and developing economies negatively, particularly when it comes to the portfolio inflows headed to these markets and amid their high levels of debt and fiscal needs, according to Gita Gopinath, the Chief Economist and Director of the Research Department at the International Monetary Fund (IMF).
Gopinath made the comments in response to a question from Ahram Online on the expected consequences of the likely interest rate rise on the region’s economies.
Gopinath said that uncertainty remains around the global economic outlook, and that the situation of the global economy in 2020 could to be three times worse if policymakers do not take the required financial measures to protect economies.
She also stressed that the uneven vaccination rollout threatens the recovery of the global economy.
“All countries have to concentrate on escaping the health crisis through prioritising the vaccine deployment and providing testing for people. They also need to secure the liquidity for firms, especially those who lack to access to finance, to avoid experiencing bankruptcy,” said Gopinath.
She added that expanding in green investments and digital transformation as well as boosting social protection systems must be among the priorities of countries globally.
On the global labour market, Gopinath said is it unlikely to be restored to its pre-pandemic levels with still-elevated unemployment and underemployment.
“Despite extraordinary policy support, including job retention programmes and wage subsidies, unemployment rates have risen by about 1.5 percent above their pre-pandemic averages in both advanced and emerging market and developing economies. Labour force participation has also dropped. Moreover, the true amount of slack may be even larger than these indicators suggest as many countries have introduced or expanded job retention programs,” Gopinath explained.
The IMF expects the global economy to grow by 6 percent in 2021, after an estimated contraction of -3.3 percent in 2020, and to moderate to 4.4 percent in 2022.
The projections for 2021 and 2022 are 0.8 percent and 0.2 percent stronger than in the IMF’s October 2020 estimations, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year, according to the IMF.