The Daily Update: IMF Forecasts

The International Monetary Fund (IMF) on Monday raised its forecast for global growth this year, however warned that there was still ‘extraordinary uncertainty’ about the year ahead. In its updated forecast the IMF predicts the global economy will now grow by 5.5% in 2021 (up from 5.2% it predicted in October) and will slow to 4.2% growth in 2022.

The biggest country upgrade was the US, in which the IMF upgraded its forecast for GDP growth in 2021 to 5.1%, an entire 2 percentage points higher than its October prediction. Interestingly, the IMF’s outlook is far more bullish for the US than its sister organization the World Bank, which only weeks ago downgraded its forecast for this year to 3.5% growth. After shrinking approximately 3.5% this year, the US will continue to bounce back in 2022 with 2.5% growth. If the IMF is correct, it would make 2021 US growth the strongest performance since the mid-80s.

The Eurozone’s GDP was downgraded by one percent to 4.2%, after a 7.2% contraction in 2020. Here in the UK, its expected GDP will grow by 4.5% this year, down 1.4% from October's estimate, following a fall of around 10% last year, the largest fall of any G7 country.

On China, the IMF downgraded its predicted growth by 0.1% below its October forecast. However, this would be a mere rounding error for a country with an expected growth of 8.1% in 2021. On top of the 2.3% it grew last year (making it the only major economy to grow in 2020) it would be a mightily impressive performance.

Of course, there is a huge caveat that comes with these forecasts. As Gita Gopinath, the IMF’s chief economist put it, there is a ‘a great deal of uncertainty around these forecasts’ adding ‘Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes’.