The International Monetary Fund (IMF) on Tuesday projected that the global economy will grow by 5.5 percent in 2021, 0.3 percentage point above the October forecast, according to the latest update to its World Economic Outlook (WEO).
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, IMF Chief Economist Gita Gopinath said at a virtual press briefing.
The upgrade for 2021 reflects the positive effects of the onset of vaccinations in some countries, additional policy support at the end of 2020 in economies such as the United States and Japan, she noted.
Gopinath, however, said that the positive effects are partially offset by a somewhat worse outlook for the very near term as measures to contain the spread of the virus dampen activity.
"There remains tremendous uncertainty and prospects vary greatly across countries," said the IMF chief economist.
Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes, she told reporters.
If downside risks were to materialize, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide, she continued.
The projected recovery in growth this year follows a severe collapse in 2020, Gopinath noted. The estimated contraction of 3.5 percent in 2020 is somewhat less dire than previously projected (4.4 percent contraction), it remains the worst peacetime global contraction since the Great Depression, she said.
Gopinath noted that because of the partial nature of the rebound, over 150 economies are expected to have per-capita incomes below their 2019 levels in 2021, adding that the number declines only modestly to around 110 economies in 2022.
"At 22 trillion dollars, the projected cumulative output loss over 2020-2025 relative to the pre-pandemic projected levels remains substantial," she said.
Noting that the strength of the projected recovery also varies significantly across countries, the IMF chief economist said China is one of these economies that returned back to the pre-pandemic projected level in the fourth quarter of 2020, "well ahead of" other major economies.
According to the latest WEO update, China's economy is estimated to have grown 2.3 percent in 2020.
"China has been very successful in containing the pandemic and that has played a very important role to bring back activity much more quickly," Gopinath said in response to a question from Xinhua.
"There's been effective policy support provided both in terms of fiscal policy and monetary policy," she continued, adding that China's exports have also gone up in this environment.
Echoing Gopinath's remarks, Malhar Nabar, division chief at the IMF's Research Department, told reporters that China's policy support has been "a big driver" of its "impressive rebound" in 2020.
"The public infrastructure spending support, and also the support that was extended to affected households and to firms, reinforced by aggressive actions by the People's Bank of China to provide liquidity support and ensure that credit provision remains strong," Nabar said.
"Going forward, we see a gradual handoff to private sector activity, starting out with a pickup in private investment activity," he said. "That's in fact already been seen in the second half of last year, and we expect that to continue."
Nabar added that in order to secure the recovery path, it's "vitally important" for China to ensure that rebalancing towards private consumption continues and "perhaps even is accelerated to an extent, with efforts to strengthen the social safety net."
In 2021, China is expected to grow by 8.1 percent, and it will expand 5.6 percent in 2022, according to IMF's WEO update. Meanwhile, global economy is projected to grow 4.2 percent in 2022.
Gopinath told reporters that progress made towards convergence over the last decade is at risk of reversing, with advanced economies generally expected to recover faster.
"The faster recoveries in advanced economies are partly due to their more expansive policy support and quicker access to vaccines relative to many developing countries," she said.
"Oil exporters and tourism-based economies face particularly difficult prospects given the subdued outlook for oil prices and expected slow normalization of cross-border travel," she added.
The IMF chief economist also noted that even within countries the burden of the crisis has fallen unevenly across groups and has increased inequality. "Workers with less education, youth, women and those informally employed have suffered disproportionate income losses," she said.
Gopinath added that close to 90 million individuals are expected to enter extreme poverty over 2020-2021, reversing the trends of the past two decades.