The International Monetary Fund raised the global growth forecasts on Tuesday amid high uncertainty and warned of divergent impacts from the Covid-19 pandemic such as sharply rising income inequality.

The world economy is set to grow 6.0 percent this year and 4.4 percent next year, the global lender said in its latest World Economic Outlook report, released Tuesday.

In a January update to the WEO, the IMF had projected growth of 5.5 percent and 4.2 percent, respectively. The latest projections were also stronger than those in the October WEO report.

The upgrade reflects the additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year, the lender said.

The global economy contracted an estimated 3.3 percent in 2020 as the coronavirus pandemic savaged economic activity across the world.

Unprecedented policy response in the form of monetary and fiscal stimulus likely made the Covid-19 recession less severe than the 2008 global financial crisis, the report said. The collapse would have been three times worse without the swift support.

However, the IMF warned of severe divergent impacts from the pandemic.

“Recoveries are also diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well,” IMF Chief Economist Gita Gopinath said.

The report said income inequality is set to increase significantly because of the pandemic and unequal setbacks in schooling compound the problem.

Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections, the IMF said.

The lender urged policymakers to be prepared to flexibly adjust policy support as vaccination against the coronavirus progresses. “When support is eventually scaled back, it should be done in ways that avoid sudden cliffs,” the IMF said.

Going forward, differential recovery speeds across countries may give rise to divergent policy stances, particularly if advanced economies benefit sooner than others from wide vaccine coverage.

The IMF stressed the need for clear forward guidance and communication from advanced economy central banks.

The US growth forecast for this year was raised to 6.4 percent, making it the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic. The economy is seen expanding at 3.5 percent next year.

The Eurozone growth forecast for this year was lifted to 4.4 percent and the projection for next year was boosted to 3.8 percent. The IMF also upgraded the projections for the big four – Germany, France, Italy and Spain.

The UK growth forecasts for this year and next were raised to 5.3 percent and 5.1 percent.

China’s growth projection for this year was raised to 8.4 percent, while the outlook for next year was left unchanged at 5.6 percent.

India’s growth forecast for this year was boosted by a percent from January to 12.5 percent and the projection for next year was upgraded to 6.9 percent.

The material has been provided by InstaForex Company – www.instaforex.com

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