IMF Lifts Global Growth Forecast for 2021 to 6%

The U.S. economy is projected to expand 6.4% this year and regain its pre-pandemic size, the IMF projects.

The U.S. economy is projected to expand 6.4% this year and regain its pre-pandemic size, the IMF projects.

Photo: mandel ngan/Agence France-Presse/Getty Images

WASHINGTON—The International Monetary Fund raised its projections for global economic growth for this year and next, citing aggressive stimulus spending by the U.S. and other rich nations and the accelerating rollout of Covid-19 vaccines.

The IMF said Tuesday it now expects the world economy to grow 6% this year, compared with the 5.5% expansion forecast in January. The upgrade comes after the pandemic cut global output by an estimated 3.3% in 2020, the worst peacetime outcome since the Great Depression. For 2022, the growth is projected to slow to 4.4%, up from the IMF’s January forecast for a 4.2% expansion.

The U.S. and China, the world’s biggest economies, are driving the recovery. The U.S. economy is projected to expand 6.4% this year and regain its pre-pandemic size after an estimated contraction of 3.5% last year. The IMF earlier projected 5.1% growth in 2021. China’s economy is projected to expand 8.4% this year, up from an earlier forecast of 8.1%.

Washington has pledged to spend roughly $5 trillion since last spring to battle the Covid-19 pandemic and its economic fallout. The Federal Reserve has slashed short-term interest rates almost to zero while buying trillions of dollars in securities. Other advanced economies, including the European Union, Japan and the United Kingdom, have pursued similar strategies.

Despite problems with vaccine rollouts in Europe and localized surges in Covid-19 cases caused by variants of the disease, the IMF raised its forecasts for other major economies, particularly Canada, the U.K. and Italy.

The recovery will be less robust in many emerging-market and developing economies hit hard by slumps in tourism and commodity exports and often lacking the financial resources needed to cushion their economies, the IMF said.

Gita Gopinath, the IMF’s chief economist, cautions the U.S. and other wealthy nations against tightening monetary policy prematurely.

Gita Gopinath, the IMF’s chief economist, cautions the U.S. and other wealthy nations against tightening monetary policy prematurely.

Photo: andrew caballero-reynolds/Agence France-Presse/Getty Images

“Multispeed recoveries are under way in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic-policy support, and structural factors such as reliance on tourism,” said

Gita Gopinath,
the IMF’s chief economist, in the latest edition of its semiannual World Economic Outlook.

In sub-Saharan Africa, GDP is expected to expand 3.4% this year, an improvement from the forecast of 3.2% in January. Output in Latin America and the Caribbean is projected to expand 4.6%, up from 4.1%. As a whole, emerging and developing economies are expected to grow 6.7%, up from a 6.3% forecast in January.

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Amid the diverging economic fortunes, Ms. Gopinath cautions the U.S. and other wealthy nations against tightening monetary policy prematurely. Higher interest rates in advanced economies could increase borrowing costs and debt burdens for countries that rely on overseas financing while drawing away investment capital.

“Major central banks should provide clear guidance on future actions with ample time to prepare to avoid taper-tantrum kinds of episodes,’’ Ms. Gopinath said, referring to 2013, when the Fed’s unexpected suggestion that it might tighten policy sent Treasury yields soaring. Advanced-economy rate increases that are orderly and reflect stronger growth expectations need not pose difficulties for other countries, she said.

Write to Yuka Hayashi at yuka.hayashi@wsj.com