Vaccine disparities hurting global growth, says IMF

The International Monetary Fund (IMF) has warned that vastly different Covid-19 vaccination rates across the world are splitting the global economic recovery into two.

David Sapsted

28 July 2021

Its latest 'World Economic Outlook' upgrades this year's forecast of economic growth in wealthy economies because of the effectiveness of the vaccine rollout, backed by governments' fiscal stimulation policies.But among emerging economies, estimates of economic growth have been cut because of surging numbers of coronavirus cases. Gita Gopinath, the IMF's chief economist, told a press conference in Washington: "Close to 40 per cent of the population in advanced economies has been fully vaccinated, compared with 11 per cent in emerging market economies, and a tiny fraction in low-income developing countries."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."Her remarks were illustrated by the increased forecasts for the US and the UK, whose economies are now predicted to grow by seven per cent this year, the highest rate among G7 countries. Chancellor of the Exchequer Rishi Sunak welcomed the record 1.7 per cent rise in the UK forecast as one of the "positive signs that the economy is rebounding faster than previously expected".But India, where the pandemic has affected millions this year, saw its growth forecast cut by three percentage points to 9.5 per cent for this year, although the estimate remains well ahead of the overall global growth forecast of six per cent.

Indonesia, Malaysia, the Philippines, Thailand and Vietnam also saw their forecasts cut as they struggle to come to terms with recent waves of Covid-19 infections weighing heavily on activity. The IMF now believes emerging Asian economies will grow by 7.5 per cent this year, down 1.1 percentage points from the April forecast.Meanwhile, in Australia, the IMF upped its forecast from 4.5 to 5.3 per cent growth and praised the nation's "success story" in tackling the pandemic. Yet that estimate was immediately contradicted by forecasts from two leading banks who feared Sydney's latest lockdown could cause an economic slump in the third quarter of the year.ANZ (Australian and New Zealand Banking Group) is forecasting a 1.3 per cent contraction while the Commonwealth Bank of Australia (CBA) is even more pessimistic and is predicting a 2.7 per cent fall, representing an economic hit to Australian GDP of more than 13 billion Australian dollars."The economics teams of CBA and ANZ have already responded to reports that Sydney's lockdown will be extended to the end of August, with ANZ assuming significant restrictions will remain in place until the end of September," reported Sky News Australia.

"The Commonwealth Bank's head of Australian economics Gareth Aird is even more pessimistic, forecasting that restrictions could remain in place in Sydney until mid-November."Globally, the IMF is calling for international action to close the gap between advanced and emerging economies, saying the immediate priority is to deploy vaccines equitably across the world."Concerted, well-directed policies can make the difference between a future of durable recoveries for all economies or one with widening fault lines - as many struggle with the health crisis while a handful see conditions normalise, albeit with the constant threat of renewed flare-ups," says the organisation.The IMF also believes that fast-rising inflation in some countries is likely to taper off to pre-pandemic ranges next year, unless businesses continue to increase prices in anticipation of future, higher inflation, and if workers demand increased wages for the same reason.