IMF Warns of Global Economic Polarization as US Growth Rises and China Declines

US Growth Revised Up to 7% This Year by 0.6 Percentage Points
China Growth Forecast Lowered to 8.1% by 0.3 Percentage Points
Korea's Growth Outlook Raised to 4.3%
"COVID-19 Vaccine Is an Economic Growth Fault Line"
Inflation Outlook Raised but Considered 'Temporary'
"Central Banks Face Risks Requiring Preemptive Action"

Kristalina Georgieva, IMF Managing Director
[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The International Monetary Fund (IMF) maintained its global economic growth forecast for this year at 6.0%, the same as the previous projection, but predicted a polarization between advanced countries and developing countries due to COVID-19 vaccine distribution.

The IMF forecasted that the United States' growth rate this year will reach 7%, indicating an expanding upward trend, while China’s growth is expected to slow down.

On the 27th (local time), the IMF released its World Economic Outlook report for the second half of the year, projecting global economic growth rates of 6.0% for this year and 4.9% for next year.

While this year’s growth rate remained unchanged from the April forecast, next year’s growth rate was revised upward by 0.5 percentage points.

The outlook for advanced countries with rapid COVID-19 vaccine rollouts improved, whereas that for developing countries without such progress declined.

The growth forecast for advanced countries this year rose by 0.5 percentage points to 5.6%. Meanwhile, the growth rate for emerging and developing countries was lowered by 0.4 percentage points to 6.3% compared to three months ago.

Notably, the outlooks for the United States and China showed significant changes. The IMF raised the U.S. growth forecast by 0.6 percentage points to 7.0%.

China’s growth forecast was lowered by 0.3 percentage points from April to 8.1%.

The IMF explained that the upward revision of the global growth forecast for next year by 0.5 percentage points reflects the expansion of the U.S. economy. Additionally, the expansion of fiscal policies in the U.S. and other countries was considered a positive factor. The downward revision of China’s growth forecast was attributed to the Chinese government’s reduction of some public investment plans.

The IMF also raised South Korea’s growth forecast by 0.7 percentage points to 4.3%, reflecting active fiscal policies.

The IMF’s assessment indicates that fiscal policies of each country are expected to have a significant impact on growth rates.

The IMF also paid attention to the spread of COVID-19 variants such as Delta. It projected that if the impact of variants increases in developing countries, global growth could decline by about 0.75 percentage points this year and 0.5 percentage points next year. If the variants spread to advanced countries as well, growth rates for this year and next year could fall by approximately 0.75 percentage points each compared to earlier forecasts.

The IMF stated, "Vaccine accessibility has become a major fault line dividing the global recovery into two blocks," but also expressed concern that "as long as the virus spreads elsewhere, recovery cannot be guaranteed even in countries currently experiencing very low infection rates."

The IMF judged inflation to be temporary but recommended that active responses might still be necessary.

The IMF raised its inflation forecasts for this year to 2.4% for advanced countries and 5.4% for emerging and developing countries, up by 0.8 and 0.5 percentage points respectively from previous estimates. Inflation in advanced countries next year was projected at 2.1%.

The IMF expects inflation to return to pre-pandemic levels in most countries next year but warned that due to continued high uncertainty, central banks worldwide face risks that require preemptive measures.

Gopinath, the IMF’s Chief Economist, also explained, "Persistent supply chain disruptions and sharp rises in housing prices are factors that could lead to sustained inflation increases."

Economist Gopinath further predicted, "Due to rising food prices and currency depreciation, inflation in some developing countries will continue to rise through 2022."