Global economic prospects have diverged further in 2021 with vaccine access emerging as the principal fault line, says the International Monetary Fund.
In a briefing on Tuesday (27 July), the group said the global recovery has effectively split into two blocs:
- Those that can look forward to further normalisation of activity later this year – which includes almost all advanced economies;
- Those that will still face resurgent infections and rising Covid death tolls.
The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere, the IMF said.
“Growth prospects for advanced economies this year have improved by half a percentage point, but this is offset exactly by a downward revision for emerging market and developing economies driven by a significant downgrade for emerging Asia.
“For 2022, we project global growth of 4.9%, up from our previous forecast of 4.4%. But again, underlying this is a sizeable upgrade for advanced economies and a more modest one for emerging market and developing economies.”
The IMF forecasts that South Africa’s real GDP will grow by 4% in 2021 and 2.2% in 2022 – well below global benchmarks. South Africa’s GDP shrank by 7% in 2020 due to the impact of the pandemic and the restrictions. The 4% growth expected for this year comes off a very low base.
Of the major markets assessed, South Africa has the second weakest anticipated growth rate for 2022, above only Brazil (+1.9%), pointing to an exceptionally slow recovery.
Risk of a double-hit
Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high, the IMF said.
“Elevated inflation is also expected in some emerging market and developing economies, related in part to high food prices. Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics.”
The IMF said that clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against the premature tightening of financial conditions.
“There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action,” it said.
The group also warned that a slower-than-anticipated vaccine rollout would allow the virus to mutate further.
“Financial conditions could tighten rapidly, for instance from a reassessment of the monetary policy outlook in advanced economies if inflation expectations increase more rapidly than anticipated.
“A double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline.”