Economy

New IMF projections will bring a more pessimistic scenario for emerging countries

Inflation is one of the main factors changing perspectives, according to the head of the institution, Kristalina Georgieva. For one of the chiefs of the U.S. Fed, prices will go down when bottlenecks are resolved... in 2022

IMF's headquarters in Washington, 09/10/2016. Photo: REUTERS/Yuri Gripas/File Photo
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The International Monetary Fund expects global economic growth in 2021 to fall slightly below its July forecast of 6%, IMF chief Kristalina Georgieva said on Tuesday, citing risks associated with debt, inflation, and divergent economic trends in the wake of the COVID-19 pandemic.

Georgieva said the global economy was bouncing back but the pandemic continued to limit the recovery, with the main obstacle posed by the “Great Vaccination Divide” that has left too many countries with too little access to COVID vaccines.

In a virtual speech at Bocconi University in Italy, Georgieva said next week’s updated World Economic Outlook would forecast that advanced economies will return to pre-pandemic levels of economic output by 2022 but most emerging and developing countries will need “many more years” to recover.

READ ALSO: Bradesco expects higher interest rates and inflation and reduces Brazil’s growth estimate for 2022

“We face a global recovery that remains ‘hobbled’ by the pandemic and its impact. We are unable to walk forward properly — it is like walking with stones in our shoes,” she said.

The United States and China remained vital engines of growth, and Italy and Europe were showing increased momentum, but growth was worsening elsewhere, Georgieva said.

Inflation pressures, a key risk factor, were expected to subside in most countries in 2022 but would continue to affect some emerging and developing economies, she said, warning that a sustained increase in inflation expectations could cause a rapid rise in interest rates and tighter financial conditions.

READ ALSO: Mexico’s and Colombia’s central banks hike rates on inflation concerns

While central banks could generally avoid tightening for now, they should be prepared to act quickly if the recovery strengthened faster than expected or risks of rising inflation materialized, she said.

She said it was also important to monitor financial risks, including stretched asset valuations. Global debt levels, now at about 100% of world gross domestic product, meant many developing countries had very limited ability to issue new debt at favorable conditions, Georgieva said.

Georgieva urged richer nations to increase delivery of COVID-19 vaccines to developing countries, remove trade restrictions and close a $20 billion gap in grant funding needed for COVID-19 testing, tracing, and therapeutics.

Failure to close the massive gap in vaccination rates between advanced economies and poorer nations could hold back a global recovery, driving cumulative global GDP losses to $5.3 trillion over the next five years, she said.

Also this Tuesday, Chicago Federal Reserve Bank President Charles Evans said, in an interview with CNBC, he continues to believe supply bottlenecks are driving most of the recent increase in inflation, and though it is higher and may last longer than initially thought, it will subside…in 2020.

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