IMF Sees Countries’ Economic Prospects Split Based on Covid-19 Vaccination Rates

IMF Sees Countries’ Economic Prospects Split Based on Covid-19 Vaccination Rates

Global lender raises forecasts for advanced economies but lowers them for emerging and developing countries

The economic outlook is diverging for countries based largely on how well they are rolling out Covid-19 vaccinations, according to new forecasts released Tuesday by the International Monetary Fund.

Economic prospects are improving for advanced economies, where nearly 40% of the population has been vaccinated, despite challenges from new variants of the coronavirus, the IMF said. At the same time, far lower vaccination rates have left emerging and developing economies more vulnerable to additional waves of the pandemic and the associated economic fallout.

Overall, the world economy is expected to expand 6% this year, the IMF said, unchanged from its April forecast and a strong rebound from last year’s 3.2% contraction. Improved forecasts for advanced economies were offset by downgrades for emerging markets and low-income countries.

“Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs,” the IMF said in an update to its twice yearly World Economic Outlook report.

The IMF raised its growth forecast for advanced economies by 0.5 percentage point, to 5.6%, citing a climbing share of vaccinations and large spending packages designed to support the recovery.

Leading the way are the economies of the U.S. and U.K. which are both projected to grow 7% this year, upgrades of 0.6 percentage point and 1.7 points, respectively, since April. That would be the best year for the U.S. since 1984, according to the IMF’s data, and the best in records back to 1980 for the U.K.

By contrast, the fund lowered its forecast for emerging and developing economies by 0.4 percentage point, to 6.3%. Significant economic damage has already occurred in countries such as India, where the Delta variant was first identified last year and has recently surged. The IMF also cut its forecasts for the Southeast Asian economies of Indonesia, Malaysia, Philippines, Thailand and Vietnam, which are grappling with more recent waves of the virus.

The IMF lowered its outlook for China by 0.3 percentage point, to 8.1%, as the world’s No. 2 economy scales back some of its public-investment plans.

The Washington-based IMF, the global lender of last resort for its 190 member countries, said the unpredictable development of the pandemic, especially in emerging-market economies, meant that its forecasts remained uncertain.

The fund has been among international institutions pushing for increased global coordination to distribute vaccines. IMF leadership joined the World Health Organization, World Bank and World Trade Organization to propose last month that wealthy countries donate $50 billion to vaccinate 60% of the world-wide population within a year.

“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 normalize,” the IMF said in its report.

Inflation in advanced economies—which has been driven largely by increases in prices of items such as lumber, used cars and air travel—is likely to subside to 2.1% next year from 2.4% in 2021 as pandemic-related supply disruptions ease, the IMF said. That outlook echoes the view of the Federal Reserve, which is expected to keep policy unchanged when officials meet this week.

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