MNI POLICY: IMF Lifts Growth Forecast on US Stimulus, Vaccines

The IMF on Tuesday raised growth forecasts that are already the strongest since the 1970s because of fiscal stimulus and vaccines driving the U.S. and Chinese economies, while warning poorer nations are at risk of capital flight and sovereign debt shocks.

Next week's World Economic Outlook will raise the IMF's January projection for 5.5% global growth in 2021, Managing Director Kristalina Georgieva said in prepared remarks. The 2022 forecast pegged at 4.2% in January will also be raised, she said. The last time global growth was this fast was a 1973 pace of 6.5% according to World Bank figures.

U.S. President Joe Biden has doubled his near-term vaccination target as production ramps up and pushed through a USD1.9 trillion fiscal package, and on Wednesday is set to announce another USD3 trillion infrastructure package. American growth was already seen by the IMF in January at 5.1% this year, and another nudge could bring it closer to China's expected 8.1% growth rate.

"What we see is a multi-speed recovery, increasingly powered by two engines -- the U.S. and China. They are part of a small group of countries that will be well ahead of their pre-crisis GDP levels by the end of 2021," Georgieva said.

"We expect inflation to remain contained, but faster U.S. recovery could cause a rapid rise in interest rates, which could lead to a sharp tightening of financial conditions -- and significant capital outflows from emerging and developing economies," the IMF chief said.

Latin American and European economies are being held back by new Covid-19 strains and slow vaccinations, the IMF said.

The global economy also needs "targeted fiscal measures -- within credible medium-term frameworks -- as well as continued monetary accommodation," she said.