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China and US to power 6% global growth in 2021, IMF says

Vaccines and fiscal aid brighten outlook but worldwide recovery speeds diverge

The IMF now sees the U.S. economy growing 6.4% in 2021, up from 5.1% in January, while China is forecast to grow 8.4%. (Nikkei montage/AP)

TOKYO -- The global economy is set to grow 6% this year thanks to progress with coronavirus vaccinations and additional fiscal support in the U.S., the International Monetary Fund projected on Tuesday in an updated outlook report.

The 6% figure marks a 0.5-percentage-point upgrade from the fund's January forecast, and a brisk reversal from an estimated 3.3% contraction for 2020. Next year, global gross domestic product is expected to expand 4.4%, up from the previously predicted 4.2%, the IMF said.

China -- the only major economy that grew in 2020, at 2.3% -- will be a key engine in Asia this year, with GDP now poised to surge 8.4%. This reflects an upgrade of 0.3 of a point, mainly thanks to an improving external environment.

The Washington-based lender also sees a significantly brighter picture for the U.S. than it did just a few months ago. The American economy is now forecast to grow 6.4% in 2021, compared to the 5.1% projection in January.

"This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic," Chief Economist Gita Gopinath wrote in an article on the IMF Blog, accompanying the release of the forecasts.

India is seen growing 12.5% in 2021, revised up by 1 percentage point, in a dramatic correction from its 8% plunge in 2020. But according to Gopinath, the improved global outlook is mainly thanks to upgrades for advanced economies. Many developing countries are not expected to return to pre-COVID levels of GDP growth until well into 2023.

"Multispeed recoveries are underway in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic policy support, and structural factors such as reliance on tourism," Gopinath said in the foreword to the latest World Economic Outlook.

The report added that "output losses have been particularly large for countries that rely on tourism and commodity exports and for those with limited policy space to respond."

Emerging and developing Asia, which includes China and India, is expected to record faster economic growth than other regions in both 2021 (8.6%) and 2022 (6.0%).

Still, risks remain for even the swiftest prospective performers: India, for example, set a record for daily COVID-19 infections on Monday -- a wave Gopinath conceded is not reflected in the latest forecast and poses downside risks.

As for China, the chief economist told reporters that its strong recovery is largely driven by public spending but private consumption is still lagging. In order to strike a better balance, Gopinath said China's fiscal policies should "work in the direction of supporting the recovery coming from the private sector as opposed to the public sector."

Meanwhile, the ASEAN-5 -- Association of Southeast Asian Nations members Indonesia, Malaysia, the Philippines, Thailand and Vietnam -- are projected to grow 4.9% collectively, after two downward revisions totaling 1.3 percentage points. They are expected to accelerate to 6.1% growth in 2022.

The IMF cautioned that its estimates hinge on vaccine effectiveness and the extent of inoculations worldwide. Its baseline projections assume that vaccine protection, together with improved testing and tracing, will reduce local coronavirus transmissions to low levels everywhere by the end of 2022.

"Much still depends on the race between the virus and vaccines," the fund said in the report. "Greater progress with vaccinations can uplift the forecast, while new virus variants that evade vaccines can lead to a sharp downgrade."

Gopinath also observed that countries could have been forced to claw out of even deeper economic holes, without the swift policy support implemented last year.

"Our estimates suggest last year's severe collapse could have been three times worse had it not been for such support," she noted, adding, "Medium-term losses are expected to be smaller than after the 2008 global financial crisis."

Nevertheless, many will continue to feel the pain. The economic downturn, especially in low-income countries, may have caused an additional 95 million people to enter the ranks of the extreme poor in 2020, compared with pre-pandemic projections, according to the IMF.

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