MNI POLICY: US & Eurozone Trade Places in IMF Growth Forecast

The IMF boosted its 2021 economic growth forecast to 5.5% from 5.2% on progress distributing Covid-19 vaccines and new fiscal relief from Japan and the U.S., and despite weaker euro region expansion, according to a new World Economic Outlook published Tuesday.

The U.S. growth forecast was increased 2 percentage points to 5.1% on December's fiscal package and momentum gathered in the second half of last year. That carried the world's largest economy past the euro area where growth was reduced by 1 percentage point to 4.2% on rising infection rates and renewed lockdowns. Japan's economy will grow 3.1%, up 0.8 percentage points from the last projection, and China was little changed at 8.1%.

Slack in the global economy will keep inflation modest through next year, the IMF said, and major central banks will keep their strong policy accommodation in place. Advanced economy inflation increases from 0.7% last year to 1.3% this year and 1.5% in 2022.

"If vaccines and therapies remain effective against new virus strains, we may be able to exit this crisis with less scarring than was feared," the IMF report said. "However, that will require much more on the policy front," according to IMF report. The projection assumes vaccines are widely available in advanced economies this summer and across most nations by the second half of 2022.

Last year's GDP decline remains the largest peacetime collapse since the Great Depression, even after vaccine progress slimmed the contraction to 3.5% from 4.4%, the IMF said. China returned to pre-pandemic GDP in the fourth quarter of last year and the U.S. will do the same this year, "well ahead of the euro area," the IMF said.

Growth for 2022 was unchanged at 4.2%.

Some developing nations will require "grants, concessional loans, and debt relief and in some cases outright debt restructuring under the new Common Framework agreed by the G-20," the IMF said.