The world economy will grow 5.5% in 2021, after sinking 3.5% in 2020, the worst year since World War II, the International Monetary Fund (IMF) predicted Tuesday (Jan. 26). The new figure for 2021 is an upgrade from the 5.2% expansion the Washington-based institution forecast in October.
The U.S. economy, the world’s largest, will expand 5.1% this year after shrinking 3.4% in 2020. China is expected to achieve a record 8.1% growth in 2021 after registering 2.3% growth in 2020.
According to IMF's latest World Economic Outlook, the economies of 19 European countries that use the euro currency will collectively expand 4.2% this year after collapsing 7.2% last year. Spain's economy will expand by 5.9%, followed by France (5.5%).
The 190-country lending organization also forecasts that the Japanese economy will expand 3.1% after seeing economic output crater 5.1% in 2020.
Looking at emerging markets, India's economy is forecast to expand 11.5% in 2021, making the country the only major economy of the world to register a double-digit growth, thanks to a faster-than-expected recovery at its factories and farms. Last year, the Indian economy declined 8%.
Earlier this month, IMF managing director Kristalina Georgieva said India “actually has taken very decisive action, very decisive steps to deal with the pandemic and to deal with the economic consequences of it”.
India's Finance Ministry had also expressed confidence that the country would recover at a fast pace and reach pre-Covid levels by the end of this fiscal, The Indian Express reported.
The IMF also expects world trade to rebound this year, recording 8.1% growth after falling 9.6% last year before moderating to 6% in 2022.
But hold the champagne. The world economy continues to face “exceptional uncertainty”, the IMF said, warning that global activity would remain well below pre-COVID projections made one year ago.
"The projected growth recovery this year follows a severe collapse in 2020 that has had acute adverse impacts on women, youth, the poor, the informally employed, and those who work in contact-intensive sectors," it said.
Close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021, with the Covid-19 wiping out progress made in reducing poverty over the past two decades
It added that winding down of policy support before economic recovery could further hurt global growth.
"If policy support is withdrawn before the recovery takes firm root, bankruptcies of viable but illiquid firms could mount, leading to further employment and income losses," the IMF said.
But for how long will policymakers continue to print money to cement recovery?