IMF sees better prospects for global economy

WASHINGTON – The International Monetary Fund prepares to raise its forecast for the global economy in 2021 and 2022 with recent fiscal stimulus in the United States and increased vaccination against Covid-19, CEO Kristalina Georgieva said on Tuesday.

IMF screened in january that global economic output would increase by 5.5% in 2021, after an estimated contraction of 3.5% last year in the middle the coronavirus pandemic. Since then, the US Congress has passed an additional $ 1.9 trillion in fiscal stimulus, and the Biden administration has raised its objectives to vaccinate the population against Covid-19.

“This allows for an upward revision of our global forecast for this year and for 2022,” Georgieva said in remarks prepared for an event on Tuesday. The new estimates will appear next week in the IMF’s periodic update on the world economy, she added.

Separately, a report released Tuesday by the Conference Board showed that consumer confidence in the United States rose in March. at its highest level since the start of the pandemic a year ago, with Americans expressing more optimism about business and labor market conditions in the coming months.

Despite the brighter outlook, Georgieva highlighted a growing divergence between rich countries that rapidly vaccinate their populations against Covid-19 and poorer countries that lack the resources to do so.

“They already have more limited fiscal power to tackle the crisis,” said Georgieva, “and many are very exposed to hard-hit sectors, like tourism.”

By next year, the cumulative loss of per capita income compared to pre-crisis forecasts will be 11% in advanced economies and 20% in developing countries excluding China, a she declared.

The divide could put pressure on financial markets, said Georgieva. She urged policymakers to carefully monitor financial sector risks, “including stretched asset valuations.”

In addition, faster growth in the United States “could lead to a rapid rise in interest rates”, which in turn could restrict the flow of money and credit in the economy and attract capital out of the country. poorest countries.

“This would pose major challenges, especially for middle-income countries with large external financing needs and high debt levels,” she said. “Many of these countries will need more help.”

Most Federal Reserve officials plan to keep overnight interest rates close to zero until 2023, although financial markets have anticipated an earlier start to tightening.

The IRS sent about 90 million stimulus checks to Americans in March. WSJ chief economic commentator Greg Ip explains why stimulus checks alone are unlikely to boost inflation. Photo illustration: Carlos Waters

Ms Georgieva echoed the Fed’s inflation outlook, saying pent-up demand could push up some prices as the pandemic restrictions end, but that effect is expected to be short-lived. She said the IMF’s forecast for US inflation in 2022 was 2.25%.

“We are not in the school of those who worry about inflation,” said Georgieva.

A number of influential economists have warned in recent months that the Biden administration’s stimulus spending could produce excessively high inflation. Former IMF Chief Economist Olivier Blanchard

written in february “There are good reasons to be concerned” about overheating growth and inflation.

Write to Paul Kiernan at [email protected]

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Appeared in the print edition of March 31, 2021 under the title “IMF clarifies its economic outlook.”

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