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- The IMF lifted its global GDP estimate for 2021 to 6% from 5.5%, citing vaccination and reopening.
- The world economy will then grow 4.4% in 2022 and 3.3% afterward, according to the outlook report.
- Large economies will play a critical role in helping developing countries fully recover.
- See more stories on Insider's business page.
The new stimulus packages and improved vaccination rates seen over the past several months should be enough to drive the strongest year of economic growth since 1976, economists at the International Monetary Fund said Tuesday.
The IMF lifted its estimate for global gross domestic product growth this year to 6% from 5.5%, according to its latest economic outlook report. The improvement was largely tied to expectations for economic reopening and mass vaccination.
Last year's decline was revised to a 3.3% drop from a 4.4% contraction. The growth estimate for 2022 was boosted to 4.4% from 4.2%. The world economy will then grow roughly 3.3% in the medium term as potential supply chain disruptions and slowed labor-force growth cut into the recovery.
Advanced economies are expected to lead the recovery due to new stimulus support approved in recent weeks. President Joe Biden in March signed off on a $1.9 trillion stimulus measure that's largely expected to boost US economic growth into the new year. New fiscal relief in other large economies should prop up growth in the near term, but governments shouldn't ignore the smaller nations likely to be left behind, the IMF said.
"Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis," the team led by Gita Gopinath said in the report. "However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses."
And despite encouraging progress toward widespread vaccination, uncertainty still plagues the global rebound. New strains of COVID-19 have kept daily case counts elevated around the world, particularly in Europe where some countries are reentering lockdowns. Potential economic scarring could also hold economies back from returning to pre-pandemic strength. Such unknowns will play a major role in how households unleash trillions of dollars in savings and fuel robust growth, the IMF said, adding risks are currently balanced and skew to the upside later on.
The unevenness of the global recovery remains a significant uncertainty, the organization added. Losses were particularly severe for countries that rely on tourism and commodity exports, as well as those with less policy firepower with which to pad against the recession. Some countries also entered the downturn with far worse fiscal situations, leaving them with a diminished ability to counter the virus' spread.
The IMF estimates that 95 million more people fell below the level that designates extreme poverty in 2020 than was forecast before the pandemic. School closures linked to the health crisis further cut into low-income groups' ability to climb the socioeconomic ladder. It's critical that the world's leading economies don't lose sight of those struggling to recover, and instead provide clear communication from central banks to allow for a broad and equitable global rebound, the organization said.
"Strong international cooperation is vital for achieving these objectives and ensuring that emerging market economies and low-income developing countries continue to narrow the gap between their living standards and those of high-income countries," the economists added.