Global economy to grow 5.5 per cent in 2021 after 3.5 per cent contraction in 2020, IMF forecasts

26/1 2021 11:30

China’s economy seen growing 8.1 per cent in 2021 as recovery continues, while the US could rebound to 4.3 per cent growth, according to the International Monetary Fund (IMF)
IMF praises US, European Union and Japan economic stimulus measures but warns that recovery is contingent on control of the coronavirus

The world economy will grow by 5.5 per cent this year, reversing the 3.5 per cent contraction that it saw in 2020, the International Monetary Fund (IMF) projects in its latest global economic forecast.

Growth will also be boosted by the continued strong economic rebound in China, as well as by policy support in large economies such as the United States and Japan. In addition, the roll-out of coronavirus vaccines could boost economic activity in the second half of the year.

The 2021 growth forecast was revised up 0.3 percentage points from its previous forecast in October, while last year’s economic contraction was 0.9 percentage points less than previously projected, according to the World Economic Outlook update, published on Tuesday.

However, economic activity remains well below pre-pandemic levels. “Even with the anticipated recovery in 2021-22, output gaps are not expected to close until after 2022,” the IMF report says.

While the US and Japan are projected to regain late-2019 activity levels in the second half of 2021, activity in the Eurozone and Britain is expected to remain below end-2019 levels into 2022, according to the global financial body.

China, the world’s second-largest economy, is expected to maintain its “strong recovery”, with growth seen hitting 8.1 per cent this year following its “effective containment measures, a forceful public investment response, and central bank liquidity support”, the IMF said. The new forecast is 0.1 percentage point lower than it was in the October forecast.

China returned to the pre-pandemic activity levels in the fourth quarter of 2020, well ahead of the other countries as a result of strong infrastructure spending and aggressive credit provision from the central bank, said Malhar Nabar, division chief at IMF’s research department, said at a press conference introducing the report.

“In terms of securing that recovery path, its likely important [for China] to ensure that the rebalancing towards private consumption continues and perhaps even accelerates to an extent,” said Nahar, adding that strengthening the social security net to bring down households’ precautionary savings so that they increase spending and enacting structural reforms to deregulate key sectors to bring in more private investment would also help China to lift its growth in the medium term.