EU at ‘crunch point’ over future of the Eurozone says expert

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The IMF on Tuesday maintained its 6 percent global growth forecast for 2021, upgrading its outlook for the United States and other wealthy economies but cutting estimates for developing countries struggling with surging COVID-19 infections. The Fund gave its biggest upgrade to Brexit Britain, lifting its 2021 growth by 1.7 percentage points to 7.0 percent, reflecting better adaptation to COVID-19 restrictions than previously anticipated.

The eurozone, on the other hand, saw a smaller 0.2 percentage point upgrade for 2021.

The report was celebrated by Generation Frexit campaigners who were prompt to mock anti-Brexit fear mongers.

Leader Charles-Henri Gallois said: “Latest IMF growth projections for 2021 and 2022.

“The United Kingdom Flag of United Kingdom from #Brexit will outperform the eurozone.

“The fear project is in safe side position!”

The divergence between wealthy economies and countries still struggling with coronavirus is based largely on better access to COVID-19 vaccines and continued fiscal support in advanced economies, while emerging markets face difficulties on both fronts, the IMF said in its update to its World Economic Outlook.

“Close to 40 percent of the population in advanced economies has been fully vaccinated, compared with 11 percent in emerging market economies, and a tiny fraction in low-income developing countries,” Gita Gopinath, the IMF’s chief economist, said during a news conference.

“Faster-than-expected vaccination rates and return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades,” she said.

The IMF significantly raised its forecasts for the United States, which it now expects to grow at 7.0 percent in 2021 and 4.9 percent in 2022 – up 0.6 and 1.4 percentage points, respectively, from the forecasts in April.

The projections assume the US Congress will approve President Joe Biden’s roughly $4 trillion in proposed infrastructure, education and family support spending largely as envisioned by the White House.

Positive spillovers from the US spending plans, along with expected progress in COVID-19 vaccination rates, are boosting the IMF’s 2022 global growth forecast to 4.9 percent, up 0.5 percentage point from April.

Japan saw a 0.5 percentage point cut, reflecting higher infections and tighter restrictions in the first half of the year.

India, which has struggled with a massive wave of coronavirus infections this year, saw the biggest cut in its growth forecast – three percentage points – to 9.5 percent for 2021.

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The IMF also reduced its 2021 forecast for China by 0.3 percentage point, citing a scaling back of public investment and overall fiscal support.

The IMF also forecast lower prospects for Indonesia, Malaysia, the Philippines, Thailand and Vietnam where recent waves of COVID-19 infections are weighing on activity.

The Fund forecast that emerging Asia would grow 7.5 percent this year, down 1.1 percentage points from the April forecast.

Low-income countries saw a downgrade of 0.4 percentage point in their 2021 growth, with the Fund citing the slow rollout of vaccines as the main factor impeding their recovery.

Gopinath said the IMF views inflation pressures as transitory due to “supply-demand mismatches” as economies reopen, with high inflation readings this year, especially in the United States, returning to normal levels next year.

But she said that if supply bottlenecks proved long-lasting, they could cause inflation expectations to become unanchored next year, which would be a concern.

“While we are seeing wages going up for some sectors, we are not seeing that as a broad-based phenomenon and inflation expectations are anchored,” she said. “However, we still aren’t out of the woods yet.”

If the Federal Reserve reassesses its inflation outlook and takes pre-emptive action to tighten monetary policy, this would add a “double-hit” to emerging markets, adding capital outflows and higher borrowing costs to their growth challenges, the Fund said.

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