The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva has intimated that the prospects for global growth have brightened since January, helped by a $1.9 trillion US rescue package.
However, she also warns that uneven progress in fighting the pandemic could jeopardize the economic gains.
Addressing the Council on Foreign Relations, a nonprofit US think tank, Georgieva revealed that when the IMF releases its updated economic forecast next week, it will show the global economy growing at a faster pace than the 5.5% gain it projected at the start of the year.
She also averred that the $1.9 trillion support package that President Joe Biden signed into law on March 11 along with rising confidence from increased vaccinations in many advanced economies were primary reasons for the forecast upgrade.
Georgieva commended governments around the globe for taking extraordinary actions over the past year. These actions, she said, included the provision of a combined $16 trillion. And a massive injection of liquidity into the financial sector by the world’s central banks.
Georgieva added that without this prompt response, last year’s downturn would have been three times worse.
Despite the positive outlook, the IMF Chief also cautioned that economic prospects are “diverging dangerously”.
According to her, this is because the global economy is now in a multi-speed recovery increasingly powered by two engines — the United States and China, the world’s two biggest economies, while other countries fall behind.
Georgieva said the world faced “extremely high uncertainty” with so much depending on the path of the pandemic. She added that new strains of the virus are holding back growth prospects, especially in Europe and Latin America.
Strong growth could trigger rise in interest
Private economists are forecasting that the U.S. economy could grow by 6% to 7% this year. This would represent the country’s best performance since 1984.
Notwithstanding, Georgieva warned that a strong growth in the United States could trigger a rapid rise in interest. This, according to her, could in turn trigger significant capital outflows from emerging market and developing economies.
She posited that emerging market and low-income countries already have limited firepower to fight the crisis. And also pointed to the highly exposed declines in tourism and other sectors hit hard by the pandemic.
She disclosed that “how to best address the pandemic” would be the key agenda item when the IMF and the World Bank hold their virtual spring meetings next week. Those discussions will also include a meeting of the finance ministers of the Group of 20 major industrial countries.
Georgieva further revealed that the IMF estimates that faster progress in ending the health crisis could add almost $9 trillion to global GDP by 2025.
“Given diverging recoveries, it is prudent to keep a close eye on financial risk, including stretched asset valuations. And major central banks have to carefully communicate their policy plans to prevent excess financial volatility at home and abroad.”
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