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IMF raises 2021 global GDP outlook on vaccine rollout, policy measures

The International Monetary Fund upgraded its 2021 global economic outlook amid expectations that the rollout of vaccines and additional policy measures would propel activity, though it flagged concerns about new coronavirus variants.

The IMF now expects the global economy to expand 5.5% this year, higher than its prior growth projection of 5.2%, and by 4.2% in 2022, according to its latest Word Economic Outlook.

The revised forecast reflects "additional policy support in a few large economies and expectations of a vaccine-powered strengthening of activity later in the year, which outweigh the drag on near-term momentum due to rising infections," the fund said.

The U.S. is expected to expand 5.1% in 2021, and the euro area by 4.2%. The Japanese economy is seen growing 3.1% this year.

Among emerging market and developing economies, China is forecast to expand 8.1% in 2021, while India is seen growing 11.5%.

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The IMF's baseline forecasts assume a broad-based vaccine availability in advanced economies and some emerging markets by summer, as well as the possibility of new lockdowns.

Additional fiscal support from large economies such as Japan and the U.S., along with the availability of the EU's massive recovery fund, will help accelerate activity in advanced nations with "favorable spillovers to trading countries."

For 2020, the global economy is expected to have contracted 3.5%, nearly a percentage point lower than the institution's previous estimate, reflecting stronger-than-expected momentum in the second half of last year.

Uneven recovery

While economic prospects look bright, the recovery will be incomplete and uneven, according to the IMF. Factors such as the extent of activity disruptions and effectiveness of policy support will affect the strength of the projected recovery per region.

The IMF expects the U.S. and Japan to return to their 2019-end activity levels in the second half of 2021. In contrast, activity in the euro area and the U.K. is expected to remain below pre-pandemic levels until 2022.

"The wide divergence reflects to an important extent differences across countries in behavioral and public health responses to infections, flexibility and adaptability of economic activity to low mobility, preexisting trends, and structural rigidities entering the crisis," the IMF said.

Advanced economies are forecast to grow 4.3% and 3.1% this year and the next, respectively, 40 basis points and 20 basis points higher than prior projections.

The IMF said downside risks to its outlook include difficulty in containing the surge of the virus, including the new variants, high infection and death rates prior to the wide distribution of vaccines and stronger-than-anticipated lockdowns.