IMF: Lack of vaccines hurting global recovery
Economic recovery from the global coronavirus pandemic is picking up speed in advanced economies at the same time that the outlook for emerging market and developing economies is getting worse. This is according to an update to the latest World Economic Outlook from the International Monetary Fund (IMF) released Wednesday.
Growth prospects for advanced economies have improved by 0.5 percentage points since April, when the IMF released its last outlook. But this improvement was offset exactly by a downward revision for emerging market and developing economies. The IMF's overall growth forecast of 6% for 2021 therefore remains unchanged, despite these revisions.
"The recovery is not assured until the pandemic is beaten back globally," IMF Economic Counselor Gita Gopinath wrote in an IMF blog.
Vaccination rates are key
The discrepancy in economic recovery can be traced back to variations in vaccine rollouts. Nearly 40% of people in advanced economies like the US, UK, and EU have been fully vaccinated, compared to 11% in emerging market economies, which include Brazil, India and Turkey. Just 1% of people in low-income developing countries have been vaccinated.
The upgrade in expectations for advanced economies was largely due to the vaccination rate rising there faster than anticipated, while the lack of access to vaccines led to downgrades for other economies.
Advanced economies also continue to see significant fiscal support tied to the COVID-19 outbreak, with stimulus expected to continue into 2022, the IMF report said.
Relief spending expired in 2020 in many emerging market economies, where fiscal buffers now need to be re-established.
Fears of inflation
The updated forecasts come as policymakers and politicians worry that aftershocks caused by the pandemic will result in inflation. The IMF, however, remains mostly unphased.
"Pent-up demand and supply chain bottlenecks are putting upward pressure on prices, but inflation is expected to subside to pre-pandemic ranges in most advanced economies," Gopinath writes.
Wage growth is broadly stable and activity in sectors hit by the pandemic, like tourism and hospitality, are expected to normalize.
Double trouble for developing economies
Still, inflation is expected to remain elevated into next year in some emerging market and developing economies, where pressure on food prices and currency depreciation has also contributed to downgraded outlooks.
Persistent supply disruptions and rising housing costs could also lead to high inflation over the long term.
While global growth could be stronger than expected, for now the outlook is dominated by downside risks, the authors of the update wrote.
The emergence of highly infectious coronavirus variants and smaller-than-expected spending in developed nations, particularly in the US, could leave emerging market and developing economies dealing with a worsening health crisis as well as a tighter fiscal environment.
To prevent the gap from widening further, the IMF calls for multilateral action in securing worldwide access to coronavirus vaccines.
The organization recently released a proposal that aims to end the pandemic by vaccinating at least 40% of the population in every country by the end of 2021. To achieve this, countries with surplus vaccines should share at least 1 billion doses and vaccine manufacturers should prioritize delivering supplies to low- and lower-middle incomes countries, the report said.
"Concerted, well-directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries or ones where divergences intensify, the poor get poorer, and social unrest and geopolitical tensions grow," wrote Gopinath.