The International Monetary Fund (IMF) has warned that the gap between the haves and the have-nots has been further exacerbated by the global health crisis, and while it maintains its 2021 and 2022 global growth estimates of 6% and 4.90%, it expects slow vaccine distribution especially in emerging markets (EMs) to result in a lopsided global recovery. “What we’re seeing at the moment is highly unequal access to vaccinations, including therapeutics and diagnostics. Therefore, what we’re seeing is a diverging recovery,” IMF Chief Economist Gita Gopinath added. While the global growth forecast for 2021 remains unchanged from the previous review in April 2021, it does, however, introduce counterweighing revisions. Growth predictions for emerging economies have been downgraded while prospects for advanced economies have been assessed to the upside, owing to the latest developments in the global health crisis and changes in monetary and fiscal support. The projected growth for rich economies in 2022 is a reflection of improved health metrics and supplementary fiscal support expected in the last two quarters of this year.
The IMF sees current price pressures as a reflection of transitory supply-demand mismatches. For the remainder of 2021, we can expect higher inflation rates in some EMs and DMs due to an increase in food prices. These elevated levels are expected to normalise to pre-pandemic levels only in 2022. Thus, the IMF has advised that key central banks should overlook near-term transitory inflation pressures and “refrain from making any drastic policy changes until there’s more clarity on underlying price dynamics.” The risks around the global baseline are assessed to the downside. If the pace of vaccination distribution remains sluggish, the virus could mutate further and lead to tighter financial conditions. Therefore, the immediate priority is bridging the vaccine distribution gap and to allow developing economies uninterrupted access to international liquidity. The IMF’s General Allocation of Special Drawing Rights fund plays a crucial role in this regard as it also expected to lift reserves and reduce liquidity constraints.
The Bottom Line
Commentary by Adriaan Pask, Chief Investment Officer At PSG Wealth
Improvements in the global economy, and in developed markets, are beneficial for emerging markets, like South Africa. For example, we have already seen how higher commodity prices and demand from stronger economies have positively impacted South Africa’s current account. Better economic growth in DMs usually benefit EMs through improved tax revenue from business who export products. This could also assist the South African government to counter some of the strain experienced during the recent social unrest.