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Global recovery gap widens on unequal vaccine access, IMF says

Further widening the recovery gap between advanced and developing economies.
Gita Gopinath. Image: Joshua Roberts/Bloomberg

The International Monetary Fund maintained its outlook for the biggest rebound in global economic growth in four decades while changing underlying regional forecasts, with unequal access to vaccines further widening the recovery gap between advanced and developing economies.

World output is still expected to grow 6% in 2021 following last year’s 3.2% drop, the fund said in an updated World Economic Outlook released Tuesday. It reduced the forecast for emerging-market expansion to 6.3% compared with the 6.7% increase projected in April, and raised the estimate for advanced economies by 0.5 percentage point to 5.6%.

The UK got the biggest bump among major economies, with the IMF now forecasting a growth rate of 7% in 2021, a touch lower than Bank of England estimates.

For 2022, the IMF now sees global growth of 4.9%, up from 4.4%.

“We warned of a dangerous divergence, and we are seeing that getting worse,” IMF Chief Economist Gita Gopinath said in an interview with Bloomberg Television after the release of the report. “We’re not out of the woods with respect to the pandemic.”

Vaccine access has emerged as “the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalisation of activity later this year — almost all advanced economies — and those that will still face resurgent infections and rising Covid death tolls,” the IMF said. “The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere.”

To address the widening gap, the Washington-based fund urged advanced economies — which have inoculated about 40% of their populations — to share their vaccine surplus with poorer nations.

“Multilateral action is needed to ensure rapid, worldwide access to vaccines, diagnostics, and therapeutics,” Gopinath said in a related blog. “This would save countless lives, prevent new variants from emerging and add trillions of dollars to global economic growth.”

In May, the fund proposed a $50 billion plan to end the pandemic, in which 40% of people in every country would be vaccinated by the end of the year. The World Health Organization, the World Bank and the World Trade Organization all endorsed the proposal.

Among other findings:

  • Emerging Asia saw the biggest downgrade among regions, with the IMF trimming the growth projection for this year by 1.1 percentage points to 7.5%.
  • A 3 percentage-point cut in the annual growth rate for India — hurt by a severe second Covid-19 wave from March to May — led the drop. Despite this, gross domestic product there is set to expand 9.5% in 2021.
  • The forecast for sub-Saharan Africa is unchanged relative to April, with worsening pandemic developments expected to weigh on the region’s recovery. A 0.9 percentage-point increase in South Africa’s forecast offset downward revisions in other countries.
  • The fund raised its GDP expansion outlooks for the US, the euro area, Latin America and the Middle East and Central Asia.
  • Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, the fund said. Elevated inflation is also expected in some emerging-market and developing economies, related in part to high food prices.

Risks tilt to the downside, with uncertainty surrounding the global baseline remaining high, the IMF said. Delays in administering vaccines would allow new variants to spread, “with possibly higher risks of breakthrough infections among vaccinated populations.”

“Concerted, well-directed policies can make the difference between a future of durable recoveries for all economies or one with widening fault lines — as many struggle with the health crisis while a handful see conditions normalise, albeit with the constant threat of renewed flare-ups,” the IMF said.

© 2021 Bloomberg


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