IMF expects 2021 global GDP to drop slightly from prior forecast of 6%

Key Points

• IMF said global GDP to be slightly below 6% in 2021

• Kristalina Georgieva said advanced economies will return to pre-pandemic levels by 2022

• Developing countries will need more time to recover

International Monetary Fund (IMF) chief Kristalina Georgieva on Tuesday said the institution expects global economic growth to fall slightly below its July forecast of 6% in 2021, citing risks associated with debt, inflation and divergent economic trends due to the COVID-19 pandemic.

In an online speech at Bocconi University in Italy, Georgieva said although the economy around the world is bouncing back, the pandemic is hindering the recovery, along with the "Great Vaccination Divide" that has left too many countries with too little access to vaccines.

Georgieva said the updated World Economic Outlook, which will likely be published next week, would forecast that advanced economies will return to pre-pandemic levels by 2022, but most of the developing countries will need "many more years" to recover.

"We face a global recovery that remains 'hobbled' by the pandemic and its impact. We are unable to walk forward properly - it is like walking with stones in our shoes," she said.

The United States and China remained vital for growth, and Italy and Europe were showing increased momentum, but growth was worsening elsewhere, Georgieva said.

However, she warned that sustained increasing inflation pressures could force a rapid rise in interest rates and tighter financial conditions.

While central banks could generally avoid tapering of bond-buying, they should be prepared to act quickly if the economy rebounds faster than expected, she said.

At about 100% of world gross domestic product, global debt levels meant many developing countries had minimal ability to issue new debt at favorable conditions, Georgieva said.

Georgieva said it was important that debt restructuring efforts already initiated by Zambia, Chad and Ethiopia be concluded successfully to encourage others to seek help.

Picture Credit: Vanguard NGR