Vaccine inequality and lack of financing could stifle global recovery

The global economic recovery gap has widened due to unequal vaccine access and lack of financial support, the International Monetary Fund (IMF) has warned in its latest world economic outlook on Tuesday.

The global economy is projected to grow by 6 percent in 2021 – unchanged from the IMF’s previous forecast made in April.

What has changed is the composition of the recovery.

IMF chief economist Gita Gopinath said the growth prospects for advanced economies this year has risen by 0.5 percent, but is offset by downward revision for emerging market and developing economies, largely due to a significant downgrade for Asian economies.

Global growth is estimated to hit 4.9 percent for 2022, up from the previous forecast of 4.4 percent.

Divergence in recoveries

The driving force behind the lopsided recoveries between countries are vaccine inequality and inadequate fiscal assistance.

Gopinath warned that a double blow could be inflicted upon developing economies from a worsening pandemic fueled by new variants and tighter financial conditions and would “severely set back” recoveries and drag global growth below their forecasted baseline.

With close to 40 percent of the populations in advanced economies fully vaccinated, less than half that number are in emerging market economies, and an even tinier fraction in low-income countries.

“Vaccine access is the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalisation of activity later this year (almost all advanced economies) and those that will still contend with prospects of resurgent infections and rising COVID death tolls,” the IMF’s report stated.

Divergences in policy support are another reason for the widening gap, with advanced economies continuing to provide considerable financial support to their citizens to the tune of $4.6 trillion in pandemic-related relief measures for 2021 and beyond.

By contrast, most low-income and emerging markets remain without access to the liquidity necessary to stimulate their economies, after most government’s pandemic support measures did not extend beyond last year.

“The recovery is not assured until the pandemic is beaten back globally,” Gopinath said during a virtual press conference where she presented the findings of the fund's latest forecasts.

Growth projections: 2021 vs 2022

Growth in the US is expected to bounce back 7 percent this year, although a slowdown to 4.9 is predicted in 2022.

The European Union is expected to drop to 4.3 percent in 2022 from 4.6 percent growth in 2021.

China is predicted to hit 8.1 percent growth this year, but slow to 5.7 percent the next. India’s 2021 outlook is growth of 9.5 percent, before falling a percentage point to 8.5 in 2022.

The Middle East and Central Asia will grow by 4.1 percent in 2021 and decelerate next year to 3.7 percent.

Turkey’s GDP growth forecast for 2021 is at 5.8 percent and will drop to 3.3 percent in 2022.

Latin America and the Caribbean are predicted to endure the sharpest decline, from 5.8 percent in 2021 to 3.2 percent.

Sub-Saharan Africa meanwhile is the only region expected to witness sustained growth from 2021 (3.4 percent) to 2022 (4.1 percent).

Inflation outlook

Spikes in annual inflation were the result of pent-up demand and supply chain bottlenecks that have put upward pressure on prices, Gopinath said.

She believes a “significant fraction of the abnormally high inflation readings is transitionary,” which were the result of pandemic-affected sectors like travel and hospitality, in addition to last year’s abnormally low commodity prices.

Inflation is expected to return to its pre-pandemic ranges for most advanced economies in 2022.

Gopinath said that many emerging markets like Brazil, Hungary, Mexico, Russia, and Turkey have begun hiking monetary policy rates to combat upward price pressures.

She added that rising food prices and currency depreciations will further fuel inflation going into 2022.

Potential solutions

Gopinath stated that multilateral action was vital to “ensure rapid, worldwide access to vaccines, diagnostics and therapeutics.”

At least 1 billion doses need to be shared in 2021 by countries with surplus vaccines, with vaccine manufacturers prioritising low and lower-middle income countries.

Access to international liquidity should be ensured for more financially constrained economies, Gopinath stressed. Central banks must also clearly communicate their monetary policy outlook while safeguarding against any premature tightening of finances.

She further urged countries to boost their recovery spending on low-carbon activities – which presently stands 18 percent – to focus more on decreasing carbon emissions and “slow the rise in global temperatures to avoid catastrophic health and economic outcomes.”