MNI POLICY:IMF Lifts Global Growth View to 6%, Best in Decades

The IMF raised its 2021 global economic growth forecast from 5.5% to 6%, the fastest pace in decades, citing U.S. fiscal stimulus and progress with Covid-19 vaccines, while warning that unclear central bank guidance could trigger a destabilizing capital flight from poorer nations.

The Washington-based fund's updated World Economic Outlook released Tuesday is the strongest since at least 1980 in its own data and the fastest since 1973 in World Bank figures. The 2022 forecast was also lifted to 4.4% from 4.2%.

The report was titled "Managing Divergent Recoveries" to underscore how global growth is being powered by the world's largest economies. U.S. growth was for 2021 was raised by 1.3pp to 6.4%, the fastest since 1984, and China's by 0.3pp to 8.4%. Those nations pulled further ahead of Euro Area growth pegged at 4.4% and Japan's at 3.3%. The U.K. was raised 0.8pp to 5.3% and Canada by 1.4pp to 5.0%.

Inflation is set to remain modest in advanced nations, at 1.6% this year and 1.7% next year, even with production curbs by OPEC+ nations raising crude oil prices by 30% in 2021. Bond yields have jumped this year as investors weigh how the Fed and other central banks will normalize policies through the economic rebound, and the IMF signaled that process could become unstable.

"Clear forward guidance and communication from advanced economy central banks is particularly crucial, and not just for calibrating the appropriate domestic monetary accommodation. It also vitally bears on external financial conditions in emerging markets and the impact that divergent policy stances have on capital flows," the IMF report said.

China has already returned to pre-Covid levels of GDP ahead of other developing nations, while the U.S. will reach that mark this year, also ahead of its peer nations, the IMF said.