Source: International Monetary Fund
October 12, 2021
Ms. Beckman ‑ Thank you for joining the Press Conference for the IMF’s World Bank Economic Outlook. I am Jennifer Beckman of the IMF’s Communications Department. I am joined here today with the IMF’s Chief Economist, Gita Gopinath, the Deputy Director of the Research Department, Petya Koeva Brooks, and the head of the World Economic Studies Division, Malhar Nabar. Gita is going to begin with some brief remarks, and then we will turn to your questions. Gita.
Ms. Gopinath ‑ Thank you, Jennifer. Thank you all for joining this release of the World Economic Outlook. The global recovery continues but the momentum has weakened, hobbled by the pandemic. Fueled by the highly transmissible Delta variant, you will recall that the global COVID‑19 debt‑hold has risen close to 5 million and held risks abound, holding back a full return to normalcy. Pandemic outbreaks and critical links of global supply chains have resulted in longer‑than‑expected supply disruptions, retreating inflation in many countries.
Overall, risks to economic prospects have increased and policy tradeoffs have become more complex. Compared to our July forecast, the global growth projection for this year has been revised down marginally to 5.9 percent and is unchanged for 2022 at 4.9 percent. However, this modest headline revision marks large downgrades for some countries. The outlook for low‑income and developing countries has taken a turn for the worse due to worsening pandemic dynamics. The downgrade also reflects more difficult near‑term prospects for the advanced economy group, in part due to supply disruptions. Partially upsetting these changes, projections for some commodity exporters have been upgraded on the back of rising commodity prices.
Pandemic‑related disruptions to contact‑intensive sectors have caused the labor market recovery to significantly lag the output recovery in most countries. The dangerous divergence in economic prospects across countries remains a major concern. Aggregate output for the advanced economy group is expected to regain its pre‑pandemic trend path next year and exceed it by 0.9 percent in 2024. By contrast, aggregate output for the emerging market and developing economy group, excluding China, is expected to remain 5.5 percent below the pre‑pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards.
Now, these divergences are a consequence of the great vaccine divide and large disparities in policy support. While over 60 percent of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96 percent of the population in low‑income countries remain unvaccinated. Furthermore, many emerging market and developing economies faced with tighter financing conditions and greater risk of de-anchoring inflation expectations are withdrawing policy support more quickly despite larger shortfalls in output.
Supply disruptions pose another policy challenge. On the one hand, pandemic outbreaks and climate disruptions have resulted in shortages of key inputs and lowered manufacturing activity in several countries. On the other hand, these supply shortages, alongside the release of pent‑up demand and the rebound in commodity prices, have caused consumer price inflation to increase rapidly in many countries.
Food prices have increased the most in low‑income countries where food insecurity is most acute, adding to the burdens of poorer households, raising the risk of social unrest.
Another challenge to monetary policy is the increased risk‑taking in financial markets and rising fragilities in the non‑bank financial institutional sector. A principal common factor behind these complex challenges is the continued grip of the pandemic on global society. The foremost priority is therefore to vaccinate at least 40 percent of the population in every country by the end of this year and 70 percent by the middle of next year.
Now, this would require high‑income countries to fulfill existing vaccine donation pledges, coordinate with manufacturers to prioritize deliveries to COVAX in the near term, and remove trade restrictions on the flow of vaccines and their inputs.
At the same time, closing the $20 billion residue of the grant funding gap for testing, therapeutics, and genomic surveillance will save lives now and keep vaccines fit for purpose.
Now, looking ahead, vaccine manufacturers in high‑income countries should support the expansion of regional production of COVID‑19 vaccines in developing countries through financing and technology transfers. Another urgent global priority is the need to slow the rise in global temperatures and contain ongoing adverse effects of climate change. This will require more ambitious commitments to reduce greenhouse gas emissions at the upcoming United Nations Climate Change Conference.
A policy strategy that includes an international carbon price floor adjusted to country circumstances agree to a public investment and research subsidy push, and compensatory targeted transfers to households can help advance the green energy transition in an equitable way. In addition, concerted multilateral efforts to ensure international liquidity is adequate for constrained economies, and faster implementation of the G‑20 Common Framework to restructure unsustainable debt would help limit divergences across countries.
Now, building on the historic $650 billion SDR allocation, the IMF is calling on countries with strong external positions to voluntarily channel their SDRs into the Poverty Reduction and Growth Trust. Furthermore, it is exploring the establishment of a Resilience and Sustainability Trust, which would provide long‑term funding to support countries’ investment in sustainable growth.
At the national level, the overall policy mix should be calibrated to local pandemic and economic conditions aiming for maximum sustainable employment while protecting the credibility of policy frameworks. With fiscal space becoming more limited in many economies, healthcare spending should continue to be prioritized while lifelines and transfers will need to become increasingly targeted, reinforced by retraining and support for reallocation. As health outcomes improve, policy emphasis should increasingly focus on long‑term structural goals.
With public debt levels at record highs, all initiatives should be rooted in credible medium‑term frameworks backed by feasible revenue and spending measures. Such credibility can lower financing costs for countries and increase fiscal space in the near term.
Moving on to monetary policy. Monetary policy will need to walk a fine line between tackling inflation and financial risks while supporting the economic recovery. Now, we project amidst high uncertainty that headline inflation will likely return to pre‑pandemic levels by the middle of next year for the group of advanced economies and emerging and developing economies. There is, however, considerable heterogeneity across countries with upside risks for some countries like the U.S. and the United Kingdom and some emerging market and developing economies.
Now, while monetary policy can generally look through transitory increases in inflation, central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery. Central banks should chart contingent actions, announce clear triggers, and act in line with that communication. More generally, clarity and consistent actions can go a long way towards avoiding unnecessary policy accidents that roil financial markets and set back the global recovery, ranging from a failure to lift the U.S. debt ceiling in a timely fashion, to disorderly debt restructurings in China’s property sector, to escalating cross‑border trade and technology tensions.
Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere. If COVID‑19 were to have a prolonged impact into the medium term, it could reduce global GDP by cumulative $5.3 trillion over the next five years relative to our current projection. It does not have to be this way. The global community must step up efforts to ensure equitable vaccine access for every country, overcome vaccine hesitancy where there is adequate supply, and secure better economic prospects for all. Thank you.
Ms. Beckman ‑ Thank you, Gita. For reporters who are watching, there are two ways to submit questions. You can use the raise‑your‑hand feature in the WebEx or type a note in the Chat, or you can submit written questions in the IMF Press Center. So, to start this morning, we would like to go to the WebEx and take a question from Xinhua.
Question ‑ Thank you very much for doing this. I have a question on the Chinese economy. The report has a slight downward revision for the Chinese economy, and I was wondering if Gita could talk about the reason for the adjustment, and also could you share some thoughts on China’s application to join the CPTPP? Would that have any impact on the recovery of China and also the region? Thank you.
Ms. Gopinath ‑ We have a very small downgrade for China. It basically reflects the fact that fiscal tightening was somewhat more than we had previously anticipated, so that was one of the main reasons for the slight downgrade. There are other challenges, of course, that China faces at this point in terms of developments in the property sector, what we are seeing in terms of supply chain disruptions, which is a phenomenon in many other parts of the world.
As to your question of joining the comprehensive and specific partnership, that is, we are aware that they put in a formal application. That particular CPTPP, the partnership’s CPTPP is a high‑quality trade agreement with pretty high standards, and all kinds of trade practices are allowed. I believe it would be good for the world to have more countries join such an agreement.
Ms. Beckman ‑ Thank you, Gita. For the next question, we will also take it from the WebEx, from Bloomberg.
Question ‑ Good morning. Yesterday, in the U.S. Treasury, the IMF’s largest shareholder, issued a statement in which it called the IMF to take proactive steps to reinforce data integrity and credibility of the Fund and Institution’s leadership must renew its commitment to transparency and [inaudible], research analysis. How does your Department intend to implement those recommendations from your largest shareholder?
Ms. Beckman ‑ The audio was not great, did you ‑‑
Ms. Gopinath ‑ I think I heard approximately. It was related to the Board statement that was put out yesterday regarding to IMF data and data integrity and what additionally needs to be done. Again, I think everybody knows this, but just to remind everybody, that the data issue that was under consideration was about the World Bank’s Doing Business Report. It had nothing to do with the IMF data. In our case, in the case of the IMF, we take data integrity incredibly seriously, which is why we have many processes in place to make sure that our data and focrecasts are completely in line with…are reviewed carefully by multiple departments and multiple economists. As always, with any institution, including the IMF, we are constantly working to ensure the highest standards for our data and for our research and our analytical work. As a part of that, we have ongoing reviews all the time, and we will continue to do so.
Ms. Beckman ‑ Thank you, Gita. For the next question, let us call on Reuters.
Question ‑ Thank you. Just hopefully to follow up on Eric’s question, in terms of concrete steps, this is what the Treasury had asked to do and what the Board said it was going to do, meet and consider new steps. What specific steps do you think are required here just to ensure this integrity? And then also related to the inflation question, you say that central banks need to be prepared to act quickly if inflation expectations look like they are becoming unhinged and this looks like it is going to become more entrenched. What sort of signs are you going to look at to measure that, to determine whether or not inflation is really much more durable than what we think it is now?
Ms. Gopinath ‑ David, again, on your first question, I mean, the Board also in its Statement made clear that they had full confidence in the impartiality and excellence of the analytical work of the IMF, so that was also a very pointed statement made. In terms of what additional steps are needed, again, this is something that we will be hearing more about this in the coming days, but just to be clear, we have a very robust system already at the IMF in terms of making sure of the credibility, the integrity of our data and forecasts. We also have the Independent Evaluation Office that reviews these reports that we put out on a regular basis. Again, we are always looking for ways to improve, so I look forward to seeing what additional steps are mentioned.
Now, to your question about inflation and inflation expectations, indeed our view is that, under the baseline, we should expect inflation to come back to much more normal levels by the middle of next year. For the advanced economy group as a whole, though, it does vary. There are some countries, for the U.S. it takes a little longer, maybe towards the end of the year. So it does vary across countries. There are risks. In terms of what we would say, what we are paying very close attention to, one is what is happening with medium and long‑term inflation expectations, how they are behaving with every data release that comes out. We are also paying attention to what is happening with wage inflation. Wage inflation is elevated in the U.S., as we all know. At the same time, it is concentrated in some sectors, so we shall see if it becomes a much more broad‑based phenomenon. I would also be interested in seeing what is happening with shelter inflation and the spillover from the big run‑up in housing prices. So all of these would be flags to pay very close attention to.
Question: Yes, thanks. I have follow-up regarding inflation. Latin America, the current Fund’s projection on prices is one of the highest among the world. I was hoping Gita could talk a little about what are the risks for that forecast, in particular, if in the case of Argentina you see any risk of spiraling inflation that might create additional problems for the region. Thanks.
Ms. Gopinath ‑ Thank you. It is important to highlight the fact that, while we are talking about inflation rising, there is heterogeneity across regions, and Latin America is one region where we have seen inflation go up more widely across multiple countries. Again, Latin America, like other parts of the world, is being affected by some global shocks with increase in energy prices, commodity prices, with supply chain disruptions, and that is affecting their costs and their full prices. There is variation across countries in terms of the extent of rebound in domestic demand and inflationary pressures that is happening. So, again, consistent with what I said previously, it is important for countries to tailor their monetary policy actions to country‑specific circumstances.
To the specific question of Argentina, we see Argentina’s inflation expectations as unanchored. It continues to be unanchored at this point, also because of the increased reliance on monetary financing in Argentina. So that is the current picture right now. We continue to work closely on technical levels with the Argentine government towards coming up with solutions to a more sustainable growth.
Question: Can you talk broadly about how Africa’s economic recovery will be affected by the pandemic, the variants, and the lack of vaccines?
Ms. Gopinath ‑ Africa has gone through a very tough time with this crisis, just like other parts of the world has. What is unfortunately unique about Africa is in terms of the levels of vaccination. We are looking at less than 4 percent of the population in Africa having been vaccinated while we are looking at, for instance, advanced economies where it is over 60 percent.
So if you look across the different parts of the world, I think the region where there has been the greatest amount of limited access to vaccinations is the African continent. This is one of the big concerns that we have. We know that this pandemic is not over. This is why we are pressing hard to get to the 40 percent target for all countries by the end of this year. This will require that countries deliver on their vaccination pledges to COVAX and also that manufacturers prioritize deliveries to COVAX. That combination will help get more vaccines to the African continent. So I think that is a very important health issue that needs to be addressed for the region as a whole.
In terms of the other factors, the African continent still has to deal with issues of high level of debt in many countries. Many countries are in high levels of debt distress already, so the international community has to play a very important role in being able to restructure this debt, but also in providing additional financing. We estimate that there will be a need for around $250 billion of additional financing to make sure that the African continent is able to achieve its development goals over the next five years. That requires immediate attention from the international community.
Question: Why is the IMF forecasting the Brazilian GDP is going to be 1.5 percent this year and 2.1 percent in 2026?
Ms. Gopinath ‑ In the case of Brazil, we have a slight downgrade because of the effects that we expect from the rising increase in monetary policy rates, given the high levels of inflation in Brazil and also because of the downward revision for the U.S., and the U.S. is one of Brazil’s main trading partners. So that combination led to a small downgrade. Let me also bring in Petya, if you would like to add something more on Brazil.
Ms. Brooks ‑ On Brazil, we did have an upgrade to our forecast in July. So I think what is most important to keep in mind is to keep that in mind when looking at our overall numbers. In the near term, it has been a very modest downgrade, but if you look at it from a longer point of view, the higher commodity prices and the return of manufacturing and services activity has been important for the recovery.
Question: What are the key upside and downside risks to India’s growth forecast at 9.5 and 8.5 percent for 2022 and 2023‑‑financial years 2022 and 2023? Is the government’s large fiscal deficit a major concern or can it afford to spend more?
Ms. Gopinath ‑ As you noticed, we do not have a change to our growth forecast for this year and next for India. India came out of a very, very tough second wave, and that led to a big downgrade in July, but we have no change as of now. There are many challenges that the Indian economy already does face with regard to the financial market, with regard to the fact that the virus is not gone yet. India is doing well in terms of vaccination rates, and that is certainly helpful. Let me also bring in Malhar, if you would like to add something on India.
Mr. Nabar ‑ Sure, Gita. In terms of the second part of the question on the fiscal deficit, we think that there is still room to provide more support if needed if the pandemic takes a turn for the worse, to provide it in a targeted manner to the worse‑affected households and firms.
Going forward over the medium term, it will be important to put in place a credible medium‑term strategy to bring down the debt‑to‑GDP ratio and create space to meet the future development needs and construction needs of the Indian economy.
Question: According to the IMF’s current WEO, the Philippines economy will grow by 3.2 percent this year and 6.3 percent in 2022. Could I have the IMF’s reason for the new outlook?
Ms. Gopinath ‑ Philippines is another country that was hit hard by the second wave, but at the same time, they have had additional supplementary budgets that they rolled out that helped in terms of the recovery. Again, Malhar, would you like to add anything more in terms of the Philippines?
Mr. Nabar ‑ Sure. As you mentioned, Gita, the Philippines is coming out of a very steep contraction last year. The recovery is underway. We expect the economy to grow 3.2 percent this year, but we have downgraded the projection for this year because of developments in the second quarter where the pandemic took a turn for the worse and caseloads went up. We also expect a shallower recovery in the second half of this year because of renewed concerns about caseloads and the spread of the pandemic.
But going forward into 2022, we think with the continued vaccine rollout, continued policy support, this should support a continued recovery in the Philippines’ economy, and we project a growth at about 6 percent in 2022, also supported by improvements in trading partner growth.
Question ‑ I had a question on inflation. To what extent are you worried about increasing inflation in major advanced economies like the U.S. partly due to the longer‑than‑expected supply disruption? In August you warned that larger markets cannot afford a repeat of the 2013 taper tantrum. What is your observation now, how are the markets prepared at the risk of a sudden change in monetary policies as a result of the rising inflation?
Ms. Gopinath ‑ Inflation is indeed one of the risks that we flag in this report. We have seen inflation go up substantially in many countries, but, again, I do want to highlight that this is not a uniform worldwide phenomenon. There is heterogeneity in how much inflation has gone up in different parts of the world.
As for your question on specific concerns on inflation in advanced economies, the risks are there. We are seeing a very unusual recovery, which is, I guess, what happens when this is a pandemic‑driven crisis and then the recovery from that. What we are seeing is supply‑demand mismatches that have lasted a long time because the pandemic has also lasted a long time. So while we have seen a bound in demand, supply has not been able to rebound as fast. That combination has led to high levels of inflation. We have seen that in commodity prices. We are also seeing that in supply chain breakdowns. Again, the expectation is that some of this will persist into next year, but then over time, we expect that these will iron out, and we should expect to see inflation coming back to much more normal ranges. But today I am just going to emphasize that there is uncertainty. We have never seen a recovery of this kind where you have shortages in the labor market at the same time you have high levels of unemployment, the fact that you have ports that are not able to off‑load container ships. This is very unique, and we have to be particularly vigilant about and make sure that these particular supply‑side shocks that do not end up with de-anchoring inflation expectations or creating wage price spirals because that is when it would show up in more core inflation and then require strong monetary policy responses.
Question ‑ Thank you very much. I wanted to ask about the Special Drawing Rights allocation and just if you could tell us how you are seeing those being used. We know that the IMF put a lot of effort into getting that allocation to happen. Are you seeing these SDRs being used by the countries? Are you seeing them meeting your goals, and what is the timeline on the rechanneling of the SDRs? Could you update us maybe on what is happening with that? Thank you.
Ms. Gopinath ‑ Yes, so the $650 billion SDR allocation is a historic allocation in terms of its size, and it comes at a time when countries need the additional liquidity that they can get, the additional reserves that it provides, because we are living in very uncertain and uncharted times. So having that buffer in terms of a liquidity buffer will be very helpful for countries. As you know, SDRs are given to countries to use as they wish, and countries are using it for multiple purposes, for addressing health concerns. Again, you have to remember that what SDRs do is provide you with additional reserve buffers, again, for a rainy day. Countries are using it in multiple different forms to help them deal with the crisis. It also improves their market standing because of these additional reserves that they have, which helps them access financial markets at more favorable terms. It is the early days to see exactly how countries will deploy this particular tool, but this is something that we will track very closely.
Question: Several recent investor and analyst commentaries have flagged stagflation concerns in the U.S. and in parts of Europe, including Germany and the U.K. They cite faltering economic growth and a steep rise in energy prices. How valid are these stagflation concerns?
Ms. Gopinath ‑ First, let us just look at what our estimates are and our projections are. Our projections for this year is for global growth to be 5.9 percent and to come down to 4.9 next year. Specifically, in the Euro area, we have growth at 5 percent this year and 4.3 percent next year. So, this is nowhere near stagnation in any form or shape in terms of our growth forecast.
Now, there are risks. I think the risks are because we are seeing more supply‑side shocks as opposed to demand‑side shocks because of the breakdowns in the supply chains, because of the rise in commodity prices, also because of the pandemic but also weather‑related events. Both of those contribute to kind of firms facing shortages and because of those shortages, they are producing less. We are seeing that already show up in countries, like, for instance, in Germany, one of the reasons for the downgrade is because of that. Those are supply disruptions. Then on the other hand, it is also feeding into higher prices. One thing about it is this complicates policymaking because, as opposed to demand‑driven increase in inflation, which monetary policy has the tools for it, here it is more complicated because you have more supply shocks, which are both reducing activity and at the same time raising inflation. But, again, just in terms of the overall baseline picture, this is not something that looks remotely close like stagflation.
Question: How might the global work‑from‑home movement resulting from the pandemic affect output activity and employment?
Ms. Gopinath ‑ Let me first mention that when it comes to employment, what we are seeing is weaker recoveries in employment as compared to output, and even if you look at our projections into next year, we are seeing many countries return to pre‑pandemic levels by next year in terms of output. We still fall short in terms of employment. While it is typically the case that employment lags output recoveries, this time around I think it is more severe also because of the health considerations and people not going back and wanting to work in contact‑intensive sectors. I think this is an important area. Similar, we are seeing young workers, low‑skill workers having a longer time returning back to employment.
The work from home provides flexibility for certain kinds of workers where you can do remote working and it helps. I think it would be beneficial in terms of productivity for those who do not have to commute to work, you save time and that directly has a positive effect. I think it affords women, also, the flexibly to be able to return to the workforce. But that said, as of now, unfortunately, we are not seeing that flexibility translate into women returning as quickly back to the labor force. This is also because of child‑care issues about schools, whether they are reopened or not. So all of this needs to be addressed. But I do think that the flexibility helps certain kinds of firms raise productivity with their workers. There is, of course, the additional piece about interactions in the workplace and creative ideas that come around there. So everybody will have to figure out what the optimal balance is to make sure that they can remain as more productive.
Question: Do you see some risks in the Mexican recovery in case that Congress approves the reforms to limit participation of private companies in the energy sector?
Ms. Gopinath ‑ For Mexico, the economy is recovering. Now, it is no longer a two‑speed recovery, which was entirely driven by exports and manufacturing previously, but now we are actually seeing recovery in the services sector too. So that is a good sign that the recovery is much more broad based. For your specific question about the energy sector, we have seen a rolling back of the energy sector reforms from a few years ago, and that certainly increases policy uncertainty, which can then inhibit private‑sector investment.
Our view is that when it comes to energy provision, we should be able to do this as efficiently, as affordably, and as sustainably when it comes to the environment and make that available. That has to continue to be the focus when you are doing any kind of reforms in the private sector.
Question ‑ Thank you for taking my question. My question is related to the U.S. You mentioned that you concerned the debt level globally, but what about the debt level of the U.S. and after the big drama around the debt ceiling, what do you think about the idea of removing the limits of debt in the U.S.?
Ms. Gopinath ‑ It is, I would say, highly unproductive to have the situation of brinkmanship with respect to the U.S. debt ceiling. And a point that we have been making for a while now is to have a longer‑term solution to it, and that can be done by replacing the debt ceiling with some kind of medium‑term fiscal target as opposed to the debt ceiling, or automatically raising the debt ceiling to be in line with whatever it is in terms of taxes and appropriations that Congress has approved so it happens automatically. But, again, these constant re-ocurrences are certainly not helpful in terms of ensuring certainty about the future. So, I think this is something that should be reformed.
Ms. Beckman ‑ Thank you, Gita. That is all that we have time for this morning for this press conference for the World Economic Outlook. Thank you for joining us and thank you for your questions.
IMF Communications Department
PRESS OFFICER: Raphael Anspach
Phone: +1 202 623-7100Email: MEDIA@IMF.org