IMF projects stronger 2021 growth amid pandemic rebound

Washington, United States: Accelerated vaccinations and a flood of government spending, especially in the United States, have boosted the outlook for the global economy, but more must be done to prevent permanent scars, the IMF said on Tuesday.

The International Monetary Fund's World Economic Outlook now sees global growth of 6.0 percent this year after the contraction of 3.3 percent in 2020 caused by the Covid-19 pandemic -- the worst peacetime downturn since the Great Depression a century before.

Rapid government responses, including $16 trillion in public funds, prevented a much worse outcome, a collapse that could have been "at least three times as large," IMF chief economist Gita Gopinath said.

The United States, which deployed another $1.9 trillion last month, is expected to grow by 6.4 percent, among the fastest expansions in the world and 1.3 points higher than the January forecast.

Meanwhile, China's economy, one of few that grew last year, will expand 8.4 percent in 2021, the IMF said.

The Euro Area too will see GDP expand 4.4 percent, slightly better than the prior forecast.

Gopinath said, "even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible."

However, she stressed that the health crisis remains the critical factor in the economic recovery, and the slow rollout of vaccinations in many developing countries risks not just a worsening Covid-19 outbreak, but also a more troubling future for those nations.

"The outlook presents daunting challenges... and the potential for persistent economic damage from the crisis," she said in the forward to the report, again warning against withdrawing support too soon.

"Without additional efforts to give all people a fair shot, cross-country gaps in living standards could widen significantly, and decades-long trends of global poverty reduction could reverse," Gopinath said.

Global minimum tax

Proposed by the United States, supported by the IMF, and welcomed by major economies including France and Germany, a global minimum tax rate on corporations is gathering momentum toward becoming a reality.

The reform aimed at ending tax competition between countries and the use of tax havens by companies will be on the agenda of G20 finance ministers when they meet virtually on Wednesday, and the group could unveil a proposal by July.

The idea has been promoted by the Organization for Economic Co-operation and Development but received a fresh boost this week when US Treasury Secretary Janet Yellen said she would push for an agreement among the advanced economies in the G20.

"Together, we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations," Yellen said on Monday.

The idea is to ensure companies pay a minimum amount of tax regardless of where they are located, preventing firms from evading taxes by establishing headquarters in countries with lower rates -- a practice prevalent among tech companies that drains resources from government coffers.

'Great step forward'

The United States lowered its corporate tax rate in 2017 under former president Donald Trump. But President Joe Biden last week proposed raising the rate again to finance a massive $2 trillion infrastructure and jobs plan.

However, Yellen has said it would be best to couple a US rate increase with the establishment of a global minimum tax to end the "race to the bottom" among countries to see who implements the lowest rate.

Washington's allies welcomed the US push, with French Finance Minister Bruno Le Maire telling AFP "a global agreement on international taxation is now within reach" and called on countries to "seize this historic opportunity."

German Finance Minister Olaf Scholz called Yellen's announcement a "great step forward" in the battle to stem the erosion of government revenues.

"The support of the USA gives this initiative a strong tailwind," Scholz said, adding he hoped a deal could be reached this year.

The European Commission expressed a similar sentiment, with spokesman Daniel Ferrie saying the bloc called on "all global partners to remain engaged in these discussions and to continue the work without delay."

How high?

The IMF joined in on Tuesday, with the fund's chief economist Gita Gopinath saying "We are very much in favor of a global minimum corporate tax."

Speaking at the start of the spring meetings of the IMF and World Bank, she underscored the "large amount" of tax avoidance and "countries sending money to tax havens."

"That's reducing the tax base on which governments can collect revenues and do the necessary social and economic spending that's required."

The international reform would be comprised of two components: the minimum tax rate and the establishment of a system to modulate corporate taxes based on profits in each country, regardless of where they are headquartered -- which would likely impact tech giants the most.

Biden singled out the US technology and e-commerce giant Amazon last week for avoiding federal income taxes as he proposed to boost the US corporate tax rate to 28 percent.

Chief executive Jeff Bezos said Tuesday that the company supports the proposal as part of a "balanced solution that maintains or enhances US competitiveness" and one that makes "bold investments in American infrastructure."

No official global minimum tax rate on corporations has been decided, but estimates range between 12.5 percent and 21 percent.

'Great step forward'

The United States lowered its corporate tax rate in 2017 under former president Donald Trump. But President Joe Biden last week proposed raising the rate again to finance a massive $2 trillion infrastructure and jobs plan.

However, Yellen has said it would be best to couple a US rate increase with the establishment of a global minimum tax to end the "race to the bottom" among countries to see who implements the lowest rate.

Washington's allies welcomed the US push, with French Finance Minister Bruno Le Maire telling AFP "a global agreement on international taxation is now within reach" and called on countries to "seize this historic opportunity."

German Finance Minister Olaf Scholz called Yellen's announcement a "great step forward" in the battle to stem the erosion of government revenues.

"The support of the USA gives this initiative a strong tailwind," Scholz said, adding he hoped a deal could be reached this year.

The European Commission expressed a similar sentiment, with spokesman Daniel Ferrie saying the bloc called on "all global partners to remain engaged in these discussions and to continue the work without delay."

How high?

The IMF joined in on Tuesday, with the fund's chief economist Gita Gopinath saying "We are very much in favor of a global minimum corporate tax."

Speaking at the start of the spring meetings of the IMF and World Bank, she underscored the "large amount" of tax avoidance and "countries sending money to tax havens."

"That's reducing the tax base on which governments can collect revenues and do the necessary social and economic spending that's required."

The international reform would be comprised of two components: the minimum tax rate and the establishment of a system to modulate corporate taxes based on profits in each country, regardless of where they are headquartered -- which would likely impact tech giants the most.

No official rate has been decided, but estimates range between 12.5 percent and 21 percent.

'Deeply iniquitous'

As the pandemic caused business and trade shutdowns, the IMF calculates that an additional 95 million people are expected to have entered the ranks of the extremely poor in 2020, and there are 80 million more undernourished than before.

The damage to developing nations' economies slashed per-capita income and "reversed gains in poverty reduction," Gopinath said.

"Averting divergent outcomes will require, above all, resolving the health crisis everywhere."

That demands international cooperation to ensure widespread vaccination campaigns to address the "deeply iniquitous" vaccine access, where rich countries are scooping up the bulk of the supply.

While the United States is expected to surpass its pre-pandemic GDP level this year, and China did so last year, many others will not hit that threshold until 2022 or well into 2023 for developing nations.

The IMF urged policymakers to safeguard the recovery through policies to support firms, including ensuring an adequate supply of credit and providing workers with wage support and retraining.

That also calls for resources to help children who have fallen behind in their education during the pandemic, the fund said.

IMF applauds US infrastructure plan, worries about vaccine reticence

The IMF welcomed President Joe Biden's plan to focus on improving US infrastructure as a way to boost the world's largest economy, a top fund economist said Tuesday.

In an interview with AFP, on the sidelines of the International Monetary Fund's Spring meetings, Petya Koeva Brooks, deputy director of the IMF Research Department, said the fund has not calculated the impact on the growth of Biden's $2 trillion proposals, since it has not yet been approved.

Meanwhile, although the latest World Economic Outlook presents a much more upbeat forecast for global growth, vaccine hesitancy in Europe is a risk.

How will the US infrastructure plan impact the economy?

"Infrastructure investment is something that we have been advocating for a long time for the US. There are significant gaps in both the quality and the size of infrastructure stock, and that has been the reason why ... we have been very supportive of the idea of having infrastructure investments. We also see a lot of merit in the proposals that are being made," she said.

"We're talking about investments in power in transportation and telecommunications and so on. And these are the types of investments that can really make a big difference for the increase the productive capacity of the economy, which would have implications for many years to come."

However, so far the package "does not seem to have the carbon pricing elements which we think is important."

Are you concerned about Europe's recovery?

"We do have a, I would say, slower recovery than in the US, and also in Japan. The euro area is not expected to reach a pre-crisis level of output until the first half of 2022," she said, with 4.4 percent growth expected this year following the 6.6 percent contraction in 2020.

"Now, when it comes to the monetary and fiscal policies, we do think that there is already a lot of support in train," and some that "is not incorporated in our forecast" including the 750-billion-euro Next Generation EU fund.

"Making sure that there are no delays in those so that these funds can be used for investment for green investments in green infrastructure, we think would make the material difference to the outlook, together with a force of continuous support at the national level," she said.

But the health crisis remains the key issue, underlining "the importance of proceeding with the vaccination campaigns and making sure that those shots going deep into the arms as quickly as possible.

"I think that is the best advice that we could give in terms of what would make a difference in the euro area."

Are you concerned about vaccine hesitancy?

"We do see signs in some countries that hesitancy is more of an issue," she said.

"This is where... having campaigns that work against that hesitancy, would be particularly important."

She cautioned that a six-month delay in having widespread vaccinations in advanced economies and nine months for emerging and developing economies would hinder the economic recovery.

"You would see global growth this year, lower by about one and a half percentage points. And then so instead of six (percent growth), it would be four and a half, and for 2022 instead of 4.4 would be 3.4."

IMF lifts China growth forecast to 10-year high

The International Monetary Fund raised its 2021 growth forecast for China to 8.4 percent on Tuesday, as it projected a stronger global rebound from the pandemic but warned of "divergences in the speed of recovery".

The figure is 0.3 percentage points above the IMF's January prediction and would mark the country's strongest growth rate since 2011 after the world's second-largest economy became the only major one to expand last year.

China has enjoyed a strong rebound since strict lockdowns across the country brought activity to a near-halt in 2020 after Covid-19 first surfaced in the central city of Wuhan.

The IMF said, "effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery".

China's GDP grew 2.3 percent in 2020 -- the slowest pace in more than four decades -- and although leaders set a modest target of more than six percent this year, analysts widely expect a much higher number.

"China had already returned to pre-Covid GDP in 2020, whereas many others are not expected to do so until well into 2023," said the IMF.

Its forecast for China is much higher than other major economies including the United States, Germany, and France, although behind India.

The IMF expects growth to slow to 5.6 percent next year, a projection unchanged from January.

Despite the strong showing, it also warned geopolitical tensions between Washington and Beijing could weigh on recovery.

"Tensions between the United States and China remain elevated on numerous fronts, including international trade, intellectual property, and cybersecurity," it said.

Meanwhile, it expects mild fiscal tightening for China and monetary policy to remain supportive this year.

Table of IMF economic growth forecasts

Here are the IMF's latest economic growth projections for 2021 and 2022, published Tuesday in a semi-annual World Economic Outlook (WEO).

The table shows GDP growth forecasts in percentages, with the change from the January WEO update in parentheses.

2021  2022 World   6.0 (0.5)  4.4 (0.2) Advanced economies   5.1 (0.8)  3.6 (0.5)   United States   6.4 (1.3)  3.5 (1.0)   Euro area   4.4 (0.2)  3.8 (0.2)     Germany   3.6 (0.1)  3.4 (0.3)     France   5.8 (0.3)  4.2 (0.1)     Italy   4.2 (1.2)  3.6 (0.0)     Spain   6.4 (0.5)  4.7 (0.0)   Japan   3.3 (0.2)  2.5 (0.1)   Britain   5.3 (0.8)  5.1 (0.1)   Canada   5.0 (1.4)  4.7 (0.6)          Emerging & developing economies  6.7 (0.4)  5.0 (0.0)     Russia   3.8 (0.8)  3.8 (-0.1)            Developing Asia   8.6 (0.3)  6.0 (0.1)     China   8.4 (0.3)  5.6 (0.0)     India   12.5 (1.0)  6.9 (0.1)            Latin America & Caribbean   4.6 (0.5)  3.1 (0.2)     Brazil   3.7 (0.1)  2.6 (0.0)     Mexico   5.0 (0.7)  3.0 (0.5)            Middle East & Central Asia   3.7 (0.7)  3.8 (-0.4)             Sub-Saharan Africa   3.4 (0.2)  4.0 (0.1)     South Africa   3.1 (0.3)  2.0 (0.6)          World Trade Volume   8.4 (0.3)  6.5 (0.2)

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