IMF forecasts stronger recovery for world economy

The International Monetary Fund is now forecasting a stronger economic recovery this year and next.

The IMF has upgraded both its UK and global forecasts compared with what it projected in January.

But the British economy is still predicted to return to its pre-pandemic level of activity only in late 2022.

The agency also warns that recoveries are diverging dangerously within and between countries.

The new UK forecast is for growth of 5.3% this year and 5.1% in 2022. Both figures are upgrades, though the latter is only marginally higher than the January forecast.

The recovery follows last year's pandemic driven contraction of 9.9% which was the deepest of any of the G7 major developed economies.

'Fairly modest'

Bringing in the two predicted recovery years, the UK's performance over 2020 to 2022 would be ahead of one of the G7 countries, Italy.

The new global forecasts are growth of 6% and 4.4% this year and next. Both are upgrades, a fairly modest one for 2022.

That mainly reflects up-rating to the forecast for developed economies, especially the United States.

'Diverging recoveries'

In a blog on the forecasts, the IMF's chief economist Gita Gopinath says a way out of the health and economic crisis is increasingly visible. Vaccinations, she writes, are likely to power recoveries in many countries in 2021.

But she is also concerned about how those recoveries are diverging.

Countries with slower vaccine rollouts, more limited support from economic policy, and those more reliant on tourism are likely to do less well.

The first two of these are particular issues for developing countries. Many have less access to vaccines, and they also tend to find it more difficult to finance economic and health policy actions.

Among emerging and developing economies, China has already returned to pre-pandemic levels of economic activity. But many others in the group are not expected to do so until well into 2023.

The report says the cumulative losses in income per person over the period 2020 to 2022 are likely to be 20% for those countries, compared with a less severe but still large figure of 11% for the developed world.

'Reversed'

The report also says that gains in poverty reduction have been reversed. It says people counted as extremely poor are likely to have increased by 95 million last year, with a rise of 80 million in the number who are undernourished.

The IMF says the divergences are occurring not just between but also within countries. Income inequality is likely to increase as young people and those with relatively low levels of skills have been harder hit in both developed and developing countries.

Women have already been affected as they account for a large share of employment in some sectors, such as tourism, where there is a lot of personal contact.

The pandemic has also had an impact on workers whose jobs are vulnerable to automation. That is a process that has been accelerated as a result of the health crisis.