The IMF reckons the Australian economy will grow by enough in 2021 to regain its pre-COVID level by the end of the year before slowing in 2022.
In its latest World Economic Outlook (WEO), the fund said Australia looks like it outperformed the world in 2020 with a 2.9% contraction instead of the 4.2% slump forecast in the October edition of the WEO.
But while the Fund sees global growth bouncing back strongly in 2021 with estimated growth of 5.5%, Australian growth of 3.5% will underperform the rest of the world because our rebound was stronger in the final months of 2020.
Australian growth is then forecast to fade a little to 2.9% in 2022 (which is up 0.1% from the October forecast). That will still be substantially faster than the 1.9% rate in 2019.
Australia’s performance compares to the IMF’s forecast a 2020 global contraction of 3.5%, an improvement of 0.9 percentage points from the 4.4% slump predicted in October, reflecting stronger-than-forecast momentum in the final months of 2020 in the US, Japan, China and Europe.
Global growth of 5.5% is forecast for 2021, an increase of 0.3 percentage points from the October forecast, thanks to rising hopes of a vaccine-powered rebound later this year and added policy support (stimulus spending) in the United States, Japan and a few other large economies.
But all this optimism is highly conditional and dependant on the growing vaccination campaigns across the world working, and proving to be effective enough to reassure consumers, businesses and governments
The Fund’s chief economist, Gita Gopinath told a Washington media briefing that “We are living in highly uncertain times,” she said. “A lot depends on this race between a mutating virus and vaccines, and how much policy support can hold up.”
The Fund sees Australian inflation this year of 1.3% (we get the 2020 reading today from the Australian Bureau of Statistics). That will be far less than the 2% to 3% target range (over time) from the Reserve Bank.
It said the American economy should grow by 5.1% in 2021, an upward revision of 2 percentage points attributed to carryover from strong momentum in the second half of 2020 and the benefit accruing from about $US900 billion in additional stimulus spending approved at the end of December.
The Fund reckons that optimistic growth forecast would be higher if the US Congress passes the new $1US.9 trillion relief package proposed by the Biden Administration.
Ms Gopinath there would be a 5% boost over three years if the package won approval.
China’s economy is expected to expand by 8.1% in 2021 and 5.6% in 2022, compared with the October forecasts of 8.2% and 5.8%, respectively.
The Chinese economy grew by 2.3% in 2020, the lowest for decades.
India’s economy is seen growing 11.5% in 2021, up 2.7 percentage points from the October forecast, after a stronger-than-expected recovery in 2020.
But with the pandemic again monstering Europe and the UK, the IMF cut its forecasts for the euro zone this year by 1 percentage point. The 19-member region, which has been severely hit by the pandemic, is now expected to grow by 4.2% this year.
Germany, France, Italy and Spain — the four largest economies in the euro zone — also saw their growth expectations cut for 2021.
The IMF does not expect the euro area economy to return to end-of-2019 levels before the end of 2022.
But all this optimism is predicated on one thing – that the rush to vaccinate populations as quickly as possible is effective.
It said multiple vaccine approvals and the launch of vaccinations in some countries in December had boosted hopes of an eventual end to the pandemic that has now infected 100 million people (that unwanted milestone was passed on Monday) and claimed the lives of more than 2.1 million globally.
The IMF cautioned that the world economy continued to face “exceptional uncertainty” and new waves of COVID-19 infections and variants posed risks, and global activity would remain well below pre-COVID-19 projections made one year ago.
Ms Gopinath said a decision by new US President Joe Biden to provide funding for the World Health Organization’s COVAX vaccine initiative was “a very big step” to containing the pandemic.
“Much more will be needed, because as we can see, given the mutating virus, that this is not a problem that’s going away anytime soon,” Gopinath told a news conference,” Reuters reported.
That’s a warning for everyone.