Covid-19 demonstrated “potency” of public spending, says IMF
– 10/13/2021
The coronavirus crisis has caused a much greater increase in public and private debt than the global financial crisis, the IMF said on Wednesday (13), stressing a “great financial divide” between countries that have access to finance and the that does not have.
Debt was generally put to good use during the pandemic, according to Vitor Gaspar, head of fiscal policy at the IMF, protecting Covid-19 families and businesses, speeding recovery and improving economic prospects.
Almost 90% of the active fiscal support mobilized during the Covid crisis was taken over by advanced economies and China. While these countries also had better access to vaccines, the IMF said it demonstrated the value of being able to support economies with public spending during a crisis.
By comparison, the lack of access to cheap credit has undermined prospects for emerging and developing countries, according to Gaspar. “The financial gap seems to translate into economic prospects. And in the case of low-income countries [a grande divisão] seems to create difficulties that persist in the medium term.”
“In 2020, fiscal policy proved its potency,” added Gaspar, as the poorest countries now face greater long-term economic losses from Covid-19, with depressed tax revenues and underlying worsening public finances.
In the IMF’s Fiscal Monitor, published on Wednesday (13), advanced economies did not emerge from the pandemic unscathed, with debt levels expected to stabilize at just below 100% of national income. However, this was less than expected six months ago.
Deficits are also likely to return to manageable levels as economies recover to normal production levels, close to their pre-pandemic trend. The IMF has not recommended that these countries take additional steps to reduce deficits.
When investing in the future, Gaspar said the pandemic has already shown that loans for “well spent” capital spending will have a positive return, boosting economic performance and not increasing the long-term debt burden.
“Vaccination at this point in Covid-19 is likely to be the highest-returning global public investment to date,” said Gaspar, adding that in many poor countries investment to help people adapt to global warming has had very high returns.
The IMF conducted a simulation exercise to assess the likely effects of the Biden government’s proposed infrastructure and family support programs in the US, in conjunction with the European Union’s recovery fund.
These huge programs added together will add 0.7% to the level of the global Gross Domestic Product in the coming years, in the assessment of the IMF, increasing investments and real interest rates in the process, with the benefits felt more intensely in the USA, in the EU and in raw material exporting countries.
The coronavirus crisis has caused a much greater increase in public and private debt than the global financial crisis, the IMF said on Wednesday (13), stressing a “great financial divide” between countries that have access to finance and the that does not have.
Debt was generally put to good use during the pandemic, according to Vitor Gaspar, head of fiscal policy at the IMF, protecting Covid-19 families and businesses, speeding recovery and improving economic prospects.
Almost 90% of the active fiscal support mobilized during the Covid crisis was taken over by advanced economies and China. While these countries also had better access to vaccines, the IMF said it demonstrated the value of being able to support economies with public spending during a crisis.
By comparison, the lack of access to cheap credit has undermined prospects for emerging and developing countries, according to Gaspar. “The financial gap seems to translate into economic prospects. And in the case of low-income countries [a grande divisão] seems to create difficulties that persist in the medium term.”
“In 2020, fiscal policy proved its potency,” added Gaspar, as the poorest countries now face greater long-term economic losses from Covid-19, with depressed tax revenues and underlying worsening public finances.
In the IMF’s Fiscal Monitor, published on Wednesday (13), advanced economies did not emerge from the pandemic unscathed, with debt levels expected to stabilize at just below 100% of national income. However, this was less than expected six months ago.
Deficits are also likely to return to manageable levels as economies recover to normal production levels, close to their pre-pandemic trend. The IMF has not recommended that these countries take additional steps to reduce deficits.
When investing in the future, Gaspar said the pandemic has already shown that loans for “well spent” capital spending will have a positive return, boosting economic performance and not increasing the long-term debt burden.
“Vaccination at this point in Covid-19 is likely to be the highest-returning global public investment to date,” said Gaspar, adding that in many poor countries investment to help people adapt to global warming has had very high returns.
The IMF conducted a simulation exercise to assess the likely effects of the Biden government’s proposed infrastructure and family support programs in the US, in conjunction with the European Union’s recovery fund.
These huge programs added together will add 0.7% to the level of the global Gross Domestic Product in the coming years, in the assessment of the IMF, increasing investments and real interest rates in the process, with the benefits felt more intensely in the USA, in the EU and in raw material exporting countries.
The IMF is warning that threats to the global eocnomic recovery are growing along with a ‘dangerous divergence’ in recoveries between richer and poorter nations.
IMF chief Gita Gopinath said on Tuesday that the 'foremost priority' is to vaccinate at least 40 percent of the population in every country by the end of this year
[File: Rodrigo Garrido/Reuters]
By Al Jazeera Staff
12 Oct 2021
The International Monetary Fund did not mince words in its latest outlook for the global economy released on Tuesday, warning that the threats to the economic recovery from last year’s COVID-19 disruptions are growing, along with a “dangerous divergence” between richer and poorer countries.
The IMF revised its headline forecast for global growth this year down slightly by 0.1 percent to 5.9 percent while leaving its projections for 2022 unchanged at 4.9 percent.
“This modest headline revision, however, masks large downgrades for some countries,” said the fund, noting that “the outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics.”
IMF chief economist Gita Gopinath elaborated on those pandemic dynamics in a virtual news conference on Tuesday, saying that global supply shortages in the face of resurgent demand are triggering commodity price inflation that is being passed on to consumers.
“Food prices have increased the most in low-income countries where food insecurity is most acute, adding to the burdens of poorer households, and raising the risk of social unrest,” she noted.
Moreover, emerging and developing economies are facing tougher financing conditions as debt levels climb, inflation soars and their currencies weaken against the US dollar – compelling them to raise interest rates in a bid to keep inflation expectations in check.
Gopinath added that challenges like rising food inflation, food insecurity and increased risk-taking in financial markets are underpinned by the pandemic’s “continued grip” on global society.
“The foremost priority is, therefore, to vaccinate at least 40 percent of the population in every country by the end of this year, and 70 percent by the middle of next year,” Gopinath said.
Almost 60 percent of the population in advanced economies are fully vaccinated and some people are even receiving booster shots. At the same time, roughly 96 percent of the population in low-income countries have yet to receive a single COVID jab, the IMF noted.
The recovery gap between richer and poorer countries is expected to widen, with the IMF calling for advanced economies to regain their pre-pandemic trend path next year and exceed it by 0.9 percent in 2024.
By contrast, the fund predicted economic growth in emerging and developing economies – minus China – would remain 5.5 percent below pre-pandemic forecasts in 2024, “resulting in a larger setback to improvements in their living standards”.
While the IMF saw inflation reverting to pre-pandemic levels by the middle of next year, a more granular analysis reveals a wide disparity in the outlook between nations.
For advanced economies, the fund believed headline inflation would peak in the final months of this year and decline to about 2 percent by mid-2022. For emerging market and developing economies, headline inflation is expected to peak at 6.8 percent later this year before falling to about 4 percent by the middle of next year “with risks tilted to the upside over the medium term”.
SOURCE: AL JAZEERA
'Great financing divide' between rich, poor nations slows recovery - IMF
By Andrea Shalal
WASHINGTON (Reuters) - Economic growth in poorer countries will likely lag pre-pandemic expectations for years, given gaps in vaccination rates, revenue growth and the ability to borrow, the International Monetary Fund said in its Fiscal Monitor report released on Wednesday.
Global debt levels increased to a record $226 trillion in 2020, a $27 trillion jump in just one year that far exceeds the $20 trillion cumulative gain seen over the two years during the global financial crisis of 2008 and 2009, the report showed.
About 90% of that increase came from advanced economies, plus China, with emerging and developing economies far less able to access financial markets for their spending needs, and also more vulnerable to possible interest rate rises, Vitor Gaspar, the IMF’s head of fiscal policy, told Reuters in an interview.
“The great vaccine divide, climate change, and the great financing divide are global problems that demand global action,” he said, warning that low-income countries face compounding challenges that could slow growth prospects for years.
The pandemic has exacerbated the “already considerable” financing gaps facing low-income countries before the crisis, Gaspar said, adding that emerging and developing economies were also more vulnerable to changes in global interest rates.
That meant they could see borrowing costs rise faster than expected once central banks start to remove monetary support seen during the pandemic, the report said.
Global government debt has stabilized at a record $88 trillion, just below 100% of gross domestic product, with fiscal and economic developments varying widely, depending on local vaccination rates, the stage of the pandemic, and the ability of governments to access low-cost borrowing.
Overall, the report said, an estimated 65 million to 75 million more people will fall into poverty by the end of 2021 than would have been the case without the pandemic.
Reporting by Andrea Shalal; Editing by Christian Schmollinger
By Andrea Shalal
WASHINGTON (Reuters) - Economic growth in poorer countries will likely lag pre-pandemic expectations for years, given gaps in vaccination rates, revenue growth and the ability to borrow, the International Monetary Fund said in its Fiscal Monitor report released on Wednesday.
Global debt levels increased to a record $226 trillion in 2020, a $27 trillion jump in just one year that far exceeds the $20 trillion cumulative gain seen over the two years during the global financial crisis of 2008 and 2009, the report showed.
About 90% of that increase came from advanced economies, plus China, with emerging and developing economies far less able to access financial markets for their spending needs, and also more vulnerable to possible interest rate rises, Vitor Gaspar, the IMF’s head of fiscal policy, told Reuters in an interview.
“The great vaccine divide, climate change, and the great financing divide are global problems that demand global action,” he said, warning that low-income countries face compounding challenges that could slow growth prospects for years.
The pandemic has exacerbated the “already considerable” financing gaps facing low-income countries before the crisis, Gaspar said, adding that emerging and developing economies were also more vulnerable to changes in global interest rates.
That meant they could see borrowing costs rise faster than expected once central banks start to remove monetary support seen during the pandemic, the report said.
Global government debt has stabilized at a record $88 trillion, just below 100% of gross domestic product, with fiscal and economic developments varying widely, depending on local vaccination rates, the stage of the pandemic, and the ability of governments to access low-cost borrowing.
Overall, the report said, an estimated 65 million to 75 million more people will fall into poverty by the end of 2021 than would have been the case without the pandemic.
Reporting by Andrea Shalal; Editing by Christian Schmollinger
World’s growth cools and the rich-poor divide widens
Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.
By: New York Times |
October 13, 2021
A street in Sao Paulo, Brazil. Poverty in many nations is on the upswing.
Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.
By: New York Times |
October 13, 2021
A street in Sao Paulo, Brazil. Poverty in many nations is on the upswing.
(Mauricio Lima/The New York Times)
Written by Patricia Cohen and Alan Rappeport
As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.
The overall growth rate will remain near 6% this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.
Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.
Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96% of people in low-income countries are still unvaccinated.
“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the IMF’s chief economist, wrote in the report.
The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the workforce.
In the United States, weakening consumption and large declines in inventory caused the IMF to pare back its growth projections to 6% from the 7% estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.
Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.
“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Gopinath said.
The IMF lowered its 2021 global growth forecast to 5.9%, down from the 6% projected in July. For 2022, the estimate is 4.9%.
The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.
For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Daco said, raising costs of raw materials that reverberate through the production process.
The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A COVID outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken, New Jersey will not have shoes and sweaters to sell.
The IMF warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.
The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.
In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.
And over the weekend, Lebanon’s 6 million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.
Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”
Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.
In Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.
And in East Asia and the Pacific, a World Bank update warned that “COVID-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40% or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.
Some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4% in 2021 compared with 6.3% estimated in July.
“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”
The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’ delay in lifting the debt ceiling — can further set back the recovery, the IMF warned.
But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.
Gopinath at the IMF urged vaccine manufacturers to support the expansion of vaccine production in developing countries.
Earlier this year, the IMF approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.
“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”
Written by Patricia Cohen and Alan Rappeport
As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.
The overall growth rate will remain near 6% this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.
Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.
Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96% of people in low-income countries are still unvaccinated.
“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the IMF’s chief economist, wrote in the report.
The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the workforce.
In the United States, weakening consumption and large declines in inventory caused the IMF to pare back its growth projections to 6% from the 7% estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.
Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.
“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Gopinath said.
The IMF lowered its 2021 global growth forecast to 5.9%, down from the 6% projected in July. For 2022, the estimate is 4.9%.
The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.
For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Daco said, raising costs of raw materials that reverberate through the production process.
The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A COVID outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken, New Jersey will not have shoes and sweaters to sell.
The IMF warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.
The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.
In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.
And over the weekend, Lebanon’s 6 million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.
Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”
Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.
In Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.
And in East Asia and the Pacific, a World Bank update warned that “COVID-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40% or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.
Some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4% in 2021 compared with 6.3% estimated in July.
“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”
The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’ delay in lifting the debt ceiling — can further set back the recovery, the IMF warned.
But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.
Gopinath at the IMF urged vaccine manufacturers to support the expansion of vaccine production in developing countries.
Earlier this year, the IMF approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.
“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”
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