BUSINESS

New coronavirus variants pose major risk to the global economy

January 26, 2021
The pandemic could slam the brakes on a global economic turnaround this year despite mass vaccination programs and unprecedented levels of stimulus, according to the International Monetary Fund.
The pandemic could slam the brakes on a global economic turnaround this year despite mass vaccination programs and unprecedented levels of stimulus, according to the International Monetary Fund.

LONDON — The pandemic could slam the brakes on a global economic turnaround this year despite mass vaccination programs and unprecedented levels of stimulus, according to the International Monetary Fund.

The IMF expects the global economy to grow by 5.5 percent this year, it said on Tuesday, or 0.3 percentage points faster than its previous forecast in October. The upgrade reflects "expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies," the group said. (The IMF estimates that the world economy shrank by 3.5 percent in 2020, its biggest peacetime contraction since the Great Depression.)

But it also warned that surging infections in late 2020, renewed lockdowns, and logistical problems with vaccine distribution could hamstring growth. If new variants of the coronavirus also prove difficult to contain, global output this year would be 0.75 percent less than the IMF expects.

Looking further ahead, the IMF expects global growth to slow to 4.2 percent in 2022.

"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 that happens," Gita Gopinath, chief economist of the IMF, said in a blog post.

Some countries will recover more quickly than others. China, which was the only major economy to grow in 2020, is forecast to achieve growth of 8.1 percent this year. The United States should emerge from its deep slump to expand by 5.1 percent, a pace that's 2 percentage points faster than the IMF predicted in October.

The 19 countries that use the euro are expected to see a growth of 4.2 percent in 2021. The United Kingdom, which endured a 10 percent contraction last year as it left the European Union and is now battling a new coronavirus variant, would rebound with a relatively modest growth of 4.5 percent.

"The wide divergence reflects important extent differences across countries in behavioral and public health responses to infections, flexibility, and adaptability of economic activity to low mobility, preexisting trends, and structural rigidities entering the crisis," the IMF said.

The pandemic is causing "exceptional uncertainty," according to the IMF.

"Although new restrictions following the surge in infections (particularly in Europe) suggest growth could be weaker than projected in early 2021, other factors pull the distribution of risks in the opposite direction," the IMF said.

If the vaccine distribution and efficacy go smoothly, for example, the output could exceed expectations by as much as 1 percent globally, with companies hiring and expanding capacity in anticipation of rising demand. — Courtesy CNN


January 26, 2021
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