The IMF warns that the global economic recovery will be grossly uneven

The IMF’s half-yearly jamboree for finance ministers and central bankers has only just begun, and already the fund has grabbed plenty of headlines. For days the IMF’s board deliberated over the fate of its boss, Kristalina Georgieva, after an investigation said she had put pressure on officials to alter a ranking of countries in her previous job at the World Bank. The Economist called for her to resign. Eight meetings later the board said the evidence “did not conclusively demonstrate” that Ms Georgieva had acted improperly, and that it had “full confidence” in her.

With her own future settled, Ms Georgieva may hope to draw attention to the prospects for the world economy instead. The fund’s headline forecast for global GDP growth in 2021 has changed little since its previous revision in July, but tweaks to projections for individual countries say much about the various forces buffeting the world economy. Prospects for America and Germany in 2021 were nudged down because of supply disruptions and shortages of manufacturing inputs. Those for Japan and parts of developing Asia were downgraded on account of the spread of the Delta variant of the coronavirus and the imposition of restrictions on activity. Economic-growth forecasts for commodity producers in Latin America and the Middle East, by contrast, were revised up, reflecting the bounty from soaring prices of fuels and metals. The fund reckons that inflation in most countries will settle back down to pre-pandemic rates next year, once bottlenecks and supply constraints ease, but the outlook is especially uncertain.

Over the longer term, the economic recovery is projected to remain grossly uneven. That, the fund argues, reflects two things. The first is the “great vaccination divide”. Nearly 60% of people in the rich world have been fully vaccinated against covid-19, allowing life there to start returning to normal, compared with only 36% in emerging economies and barely 5% in the poorest countries. That inequality is reinforced by the second factor: variations in fiscal largesse. In 2020 rich and poor countries alike loosened the purse-strings to protect households and businesses from the impact of lockdowns. This year fiscal support in the rich world is projected to remain broadly as generous as it was last year, allowing time for the private sector to get back on its feet (and, some economists would argue, even leading to some overheating in America). Emerging markets, by contrast, have shrunk their budget deficits (adjusted for the economic cycle, and before interest payments).

The result will be a two-speed global economy. Output in the rich world is expected to return to its pre-pandemic trend by next year, and then to rise slightly above it. For the rest of the world, however, GDP is expected to remain well below trend at least until 2025. The scars of the pandemic-induced downturn will not heal for some time. ■