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WASHINGTON – The world’s leading economic officials plan to focus on a virtual meeting this week on the prospect of new Covid-19 variants and closures undermining the global setback, while weighing measures to endure damage to the poorest and most vulnerable to prevent population.
The international economy is recovering faster than many economists predicted just a few weeks ago, driven by growth in the US and China and by the accelerating rate of vaccinations in many rich countries. Yet a new wave of barriers – from Europe to Canada – is threatening growth, as many low- and middle-income countries are lagging behind.
“The window of opportunity is closing fast,” Kristalina Georgieva, managing director of the International Monetary Fund, told the World Bank of the meeting, citing an example of the issues facing central bankers and finance ministers. “The longer it takes to speed up the production and rollout of vaccines, the harder it will be to make these profits,” she said.
IMF INCREASES ECONOMIC OUTLOOK FOR 2021, BUT WARNS NEW COVID-19 VARIANTS CAN GROW DERAIL
In a report to be released on Tuesday, the IMF plans to increase its forecast for global growth for this year from the 5.5% expansion predicted in January, Ms. Georgieva said Wednesday in her submission. This would follow an estimated contraction of 3.5% in 2020, the worst peacetime outcome since the Great Depression.
The annual spring meeting of the IMF and the World Bank is held virtually between 5 and 11 April and brings together policymakers from the group of 20 countries and others. The response to the pandemic, including the distribution of vaccines and aid to struggling countries, is expected to dominate the talks this year. Officials will also discuss ways to rebuild the global economy, with a specific focus on strengthening resilience to climate change.
The recovery is largely due to some $ 16 billion in fiscal stimulus and liquidity injections from governments and central banks, mainly in affluent countries, the IMF said. The U.S. government alone has pledged about $ 5 billion in stimulus spending since the start of the pandemic.
Pedestrians walk past International Monetary Fund (IMF) and the World Bank spring meetings outside the IMF headquarters at sunrise in Washington, DC, USA on Saturday, April 3, 2021.
The IMF forecast 5.1% growth in the US in January this year, but private forecasters have since raised their forecasts to 7% or more, following the introduction of a new $ 1.9 billion stimulus package in March. China, which brought the pandemic under control faster to resume production and exports, is forecast to grow by 8.1%.
At the same time, the emergence of virus variants is one increasing risk to the economic outlook. Three first identified in the UK, South Africa and Brazil have since spread around the world. All have worrying features that threaten to undo the progress of shutting down the pandemic if the virus is not controlled.
According to researchers, there is convincing evidence that these variants and their offspring are more transmissible than older versions of the pathogen. This is already leading to new outbreaks and reactions to the health of the growth. The UK has only been starting since January from a lighted closure. French President Emmanuel Macron announced a new national exclusion last week, citing increases in cases attributed to these more contagious variants.
In Canada, Ottawa experienced a record number of cases on Saturday, and Ontario maintains restrictions that have shut down restaurants, gyms and personal care services for weeks. Brazil and India have recorded sharp increases in cases.
In the US, states ease restrictions because vaccine deployment has accelerated. But as the number of new cases increases, partly due to variants, officials have warned of a possible upsurge.
Some laboratory studies have suggested that the current crop of vaccines may lose their potency if it is particularly concerned with the South African and Brazilian varieties. The concern is that the virus could exploit new mutations that could help it evade immunity and prevent new outbreaks that prompt governments to shut down pieces of their economies again.
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Scientists are generally optimistic because the vaccine technologies used against the virus – and our own immune systems – are also capable of adapting. The emergence of these variants, according to scientists, reinforces the need to sniff out the chains of transmission and vaccination as widely as possible to give the virus less chance of recurrence, obtaining beneficial new mutations and returning.
“It will look like a real evolution experiment: can the variants beat the vaccines?” says Alex Sigal, who leads a team of researchers researching coronavirus variants at the Africa Health Research Institute in South Africa.
Even before the new concerns about the variants, global policymakers are worrying about growing inequalities in the world economy this year. In emerging and developing countries, the Covid-19 crisis has reduced gross domestic product per capita by one-fifth – almost twice the loss among advanced economies, the IMF estimates. Last year, more than 100 million people, mostly in South Asia, fell into extreme poverty, defined as living on less than $ 1.90 a day. Worldwide, six million children could leave school this year and cloud their future prospects, the IMF says.
“Economic happiness is diverse,” she said. Georgieva said. “Vaccines are not yet available to everyone and everywhere. Too many people continue with job losses and increasing poverty. Too many countries are lagging behind. ”
Money to help poor countries is limited, as large economies have focused on fighting the pandemic and restoring their own economies. The group of 20 major economies provided more than 40 low-income countries with $ 5 billion in debt relief, but the private sector credit providers did not join. According to the Institute of International Finance, the external debt of low-income countries more than doubled between 2010 and 2019 to more than $ 750 billion.
“Rich governments could approve trillions of dollars in stimulus packages for businesses, for cash transfers for people, vaccines and for education, but what about low- and middle-income countries?” asks Nadia Daar, head of the Washington office of Oxfam International. “The financial response the world has given has simply not been sufficient.”
To address the problem without contributing to the burden, the IMF has proposed issuing $ 650 billion in special drawing rights, an international reserve asset that could swap countries for dollars or other major currencies to cover liabilities. Critics say it is an ineffective way to help poor countries, as most SDRs are given to rich countries that are the largest IMF shareholders. Republican lawmakers in the U.S. also say the issuance could help repressive regimes and state-backed terrorism.
In response to these objections, the U.S. Treasury Department said Thursday that advanced economies are following ways to lend some of their SDRs to low-income countries. The Treasury also said the U.S. could refuse to exchange dollars for SDRs from countries whose policies deviate from U.S. interests.
Concerns are also being raised about the possible negative effects of massive stimulus spending by the US and other affluent countries on the developing world. Stimulus can boost inflation, which could push central banks to raise interest rates and thus increase the debt burden for countries.
“One big question, which is common to all economies, is how fast the stimulus should be withdrawn, and what happens when it is withdrawn and whether you will see an increase in bankruptcies,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, in an interview. She added that the world economy has so far shown enormous resilience.
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Federal Reserve Chairman Jerome Powell said he did not expect to change the central bank’s easy monetary policy any time soon. Nevertheless, the yield on the standard 10-year treasury note last week was 1.72%, compared to 0.91% at the end of last year, on signs of an accelerated economic recovery. It remains low by historical standards.
Rising U.S. yields have taken capital away from emerging markets, putting their currencies under pressure while fueling inflation as well as future inflation fears. Last month, Turkish President Recep Tayyip Erdogan ousted the country’s central bank governor, who has repeatedly raised interest rates in an effort to curb inflation.
– Jason Douglas and Daniela Hernandez contributed to this article.