The International Monetary Fund warned on Tuesday that the gap between rich and poor countries was widening amid the pandemic, with low vaccination rates in emerging economies leading to a lopsided global recovery.
The I.M.F. maintained its 2021 global growth forecast of 6 percent in its latest World Economic Outlook report, largely as a result of advanced economies, including the United States, expecting slightly faster growth than the global body previously forecast. Economic growth in developing countries is expected to be more sluggish, and the global body said that the spread of more contagious variants of the virus poses a threat to the recovery. It called on nations to work together to accelerate protect their citizens.
“Multilateral action is needed to ensure rapid, worldwide access to vaccines, diagnostics and therapeutics,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report. “This would save countless lives, prevent new variants from emerging, and add trillions of dollars to global economic growth.”
The I.M.F. projected that the U.S. economy will expand 7 percent in 2021. The euro area was projected to expand 4.6 percent and Japan was expected to expand 2.8 percent. Rapid expansion was expected for China, at 8.1 percent, and India, 9.5 percent, but both of their outlooks have been downgraded since April. The outlook in China was lowered because of a scaling back of public investment, while India was downgraded because of a severe second wave of the virus slowing the recovery.
The global expansion in 2022 was projected to be stronger than previously forecast, with growth of 4.9 percent. That, too, will be led by advanced economies, the I.M.F. predicted.
More than a year after the coronavirus emerged, economic fortunes are closely tied to how successfully governments have been at providing fiscal support and acquiring and deploying vaccines. The I.M.F. said that about 40 percent of the population in advanced economies has been fully vaccinated, while that figure is just 11 percent or less in emerging markets and low-income developing economies. Varying levels of financial support from governments is also amplifying the divergence in economic fortunes.
The I.M.F.’s executive board announced earlier this month that it had approved a plan to issue $650 billion worth of reserve funds that countries can use to buy vaccines, finance health care and pay down debt. If finalized in August, as expected, the funds should provide additional support to countries that have been lagging behind in combating the health crisis.
Concerns about price increases have grabbed headlines in the United States and elsewhere, but the I.M.F. said that it continued to believe that the recent bout of inflation was “transitory.” The organization noted that jobless rates remain below their prepandemic levels and that long-term inflation expectations remain “well anchored.” Ms. Gopinath said that predicting the path of inflation is subject to much uncertainty because of the unique nature of the economic shock that the world has faced.
“More persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation,” Ms. Gopinath said.
As the Federal Reserve prepares to meet on Tuesday and Wednesday, she advised central banks to be nimble in setting monetary policy and urged them not to raise interest rates too soon.
“Central banks should avoid prematurely tightening policies when faced with transitory inflation pressures but should be prepared to move quickly if inflation expectations show signs of de-anchoring,” Ms. Gopinath added.
During a press briefing on Tuesday, I.M.F. officials said they have been observing how supply shortages are depressing manufacturing activity and are having a negative impact on sectors such as the automobile industry.
While the I.M.F. expects inflation in the United States to remain high this year and normalize by next year, they are looking for signs that rising prices could “de-anchor” from the Federal Reserve’s 2 percent target. That will become clear, they said, if medium-term inflation expectations begin to rise and if higher prices become locked in to wages and business contracts. Officials are also watching to see if the recent sharp increase in house prices continues to lead to higher rents, which would lift the inflation outlook.
Mutations of the virus remain the most daunting challenge facing the global economy. The I.M.F. projected that highly infectious variants, if they emerge, could derail the recovery and wipe out $4.5 trillion in gross domestic product by 2025.
The brunt of that pain would likely be felt in the poorest parts of the world, which have been hardest hit by the initial waves of the pandemic.
“It was already diverging and that has exacerbated in this period,” Ms. Gopinath said of global inequality. “It is a reflection of some very big fault lines that are growing.”