A recent report by the International Monetary Fund, World Economic Outlook, has revealed that the global economy continues to recover considering increased uncertainty due to the advent of the Delta variant of COVID-19. Although vaccines are accessible, challenges such as subdued employment growth, rising inflation, food insecurity, a decrease in human capital accumulation, and climate change are of great concern.
The global economy is projected to grow 5.9 percent in 2021 and 4.9 percent in 2022 as shown in the chart from IMF, World Economic Outlook, October 2021. The decrease in 2021 reflects a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics. The chart also shows that, for some emerging market and developing economies, we’ve seen modest growth from 2020 to 2021. China saw increased growth from 2.3 percent to 8.0 percent, -3.0 percent to 4.7 percent in Russia, and -6.4 percent to 5.0 percent in South Africa. Emerging market and middle-income economies grew from -2.3 percent to 6.7 percent and low-income developing countries grew from 0.1 percent to 3.0 percent. Overall, global growth after 2022 is projected to increase to 3.3 percent.
Rising inflation risks continue to be of concern as pandemic-related supply-demand mismatches and higher commodity prices. Price pressures are expected to remain due to elevated food prices, high oil prices, and the depreciation of exchange rates of imported goods.
A top priority is also the need to accelerate vaccination of the world population. A proposal by IMF has at least 40 percent of the population in every country vaccinated by the end of 2021 and 70 percent by mid-2022. In addition, from a climate perspective, there are efforts underway to decrease greenhouse gas emissions.
Regarding monetary policy, central banks should be prepared to act if the pandemic recovery strengthens faster than expected or risks of rising inflation expectations become substantial. Monetary policy may need to be tightened even if this may result in delays of employment recovery. Monetary policy could also remain stable if inflation pressures are also stable and inflation expectations are kept below the central bank target.
It is critical that the challenges associated with the post-pandemic economy are dealt with now. These challenges include reversing the pandemic-induced setback to human capital accumulation, developing new opportunities for green technology and digitalization, reducing inequality, and making sure public finances remain.