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Sunday, 21 March 2021

Recovery may not trickle down to EMs -IMF

The IMF may update its next World Economic Outlook to reflect signs of a stronger global economic recovery than the 5.5% GDP growth it forecast in January, IMF First Deputy Managing Director Geoffrey Okamoto said in a speech to the China Development Forum, according to Reuters. Okamoto appears to be co-signing on the Biden administration’s USD 1.9 tn covid-19 stimulus, hinting that the upgrade would in part happen because of the move.

What’s the WEO? The IMF’s World Economic Outlook is released in April and October with occasional updates in between. It’s the most closely watched barometer of what to expect from global growth and the macro trends that drive economies. The next WEO is due out in April.

But it’s not looking good for EMs, with Okamoto warning of “worrying signs” of a widening gap between advanced economies and emerging markets.The fund projects that cumulative income per capita will be 22% lower in developing countries (excluding China) between 2020 and 2022 compared to expected levels had there not been a pandemic due to these risks, Okamoto added.

A large part of it is vaccine diplomacy: Among the biggest risks Okamoto highlighted in his speech is the lack of access to vaccines in developing countries compared to advanced economies. “It was unclear how long the pandemic would last and access to vaccines remained very uneven, across both advanced and emerging economies,” he says.

Fiscal spending in 2021 would be constrained in these countries as a result, he warned, with some countries having little scope to boost spending to mitigate the pandemic’s economic impact, especially low-income countries with high debt levels. “Tighter financial conditions could exacerbate vulnerabilities in countries with high public and private debt,” he said, citing recent increases in bond yields garnered by market expectations of an earlier withdrawal of monetary stimulus.

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