REGIONAL OFFICE FOR ASIA AND THE PACIFIC (OAP)

Asia-Pacific Regional Seminar

IMF’s Latest World Economic Outlook: Managing Divergent Recoveries

The IMF recently revised its projection of global economic growth in 2021 upward from 5.5% to 6%, but it warns that much remains to be done to beat back the pandemic and avoid persistent increases in inequality within countries and divergence across economies. The IMF Regional Office for Asia and the Pacific hosted an online seminar to share the analysis from the latest World Economic Outlook (WEO) report on May 13. Authoring economists from the IMF Research Department discussed the global outlook and policies, and present thematic analyses of the pandemic’s possible scarring effects, the labor market fallout from the pandemic, and spillover risks and challenges from monetary policy during the recovery.

Speakers:

• Malhar Nabar heads the World Economic Studies division in the IMF Research Department, which produces the World Economic Outlook (WEO). In previous roles in the IMF's Asia and Pacific Department he covered China and Japan, and was mission chief for Hong Kong, SAR. Malhar’s research interests are in financial development, investment, and productivity growth. Before joining the IMF in 2009, he was an Assistant Professor of Economics at Wellesley College. He holds a Ph.D. from Brown University.

• Giacomo Magistretti is an Economist in the World Economic Studies Division of the IMF Research Department. He recently joined the IMF after completing his PhD in Economics at Northwestern University. His research focuses on macroeconomics and fiscal policy.
  
  

• Ippei Shibata is an Economist in the Structural Reforms Unit of the IMF Research Department. Previously, he worked in Western Hemisphere, and Strategy, Policy and Review Departments of the IMF. His research focuses on applied macroeconomics and labor market issues. He holds a Ph.D. in Economics from the University of Chicago.

• Philipp Engler is an Economist in the Multilateral Surveillance Division of the IMF Research Department. Previously, he worked at the DIW Berlin Institute and Freie Universität Berlin. His research focuses on open economy macroeconomics and fiscal policy.
•  

Summary of WEO chapters:

Ch. 1. Global Prospects and Policies  Although the contraction of activity in 2020 was unprecedented in living memory, extraordinary policy support prevented even worse economic outcomes. Global growth is projected at 6% in 2021, moderating to 4.4% in 2022, revised up from the October 2020 WEO. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the pandemic’s path, the effectiveness of policies as a bridge to vaccine-powered normalization, and the evolution of financial conditions. Much remains to be done to beat back the pandemic and avoid persistent increases in inequality within countries and divergence across economies.

Ch. 2. After-Effects of the COVID-19 Pandemic: Prospects for Medium-Term Economic Damage This chapter examines the possible persistent damage (scarring) that may occur from the COVID-19 recession and the channels through which they may occur. Expected medium-term output losses from the pandemic are substantial, at about 3 percent lower than pre-pandemic anticipated output for the world in 2024. The degree of expected scarring varies across countries, depending on the structure of economies and the size of the policy response. To limit scarring, policymakers should continue to provide support to the most-affected sectors and workers while the pandemic is ongoing. Remedial policies for the setback to human capital accumulation, measures to lift investment, and initiatives to support reallocation will be key to address long-term GDP losses.

Ch. 3. Recessions and Recoveries in Labor Markets: Patterns, Policies, and Responses to the COVID-19 Shock  The labor market fallout from the COVID-19 pandemic shock continues, with young and lower-skilled workers particularly hard-hit. This chapter examines the labor market consequences of the crisis, how it compares with previous shocks, and how policies can help. Preexisting employment trends favoring a shift away from jobs that are more vulnerable to automation are accelerating. Policy support for job retention is extremely powerful at reducing scarring and mitigating the unequal impacts from the acute pandemic shock. As the pandemic subsides and the recovery normalizes, a switch toward worker reallocation support measures could help reduce unemployment more quickly and ease the adjustment to the permanent effects of the COVID-19 shock on the labor market.

Ch. 4. Shifting Gears: Monetary Policy Spillovers During the Recovery from COVID-19  Monetary policy easing by advanced economies early in the pandemic provided much financial relief to emerging markets. Looking ahead, a multispeed recovery from the crisis will raise challenges. Our analysis suggests that while a US tightening resulting from a stronger US economy tends to be benign for most emerging market economies, a surprise tightening triggers capital outflows from emerging markets. It will thus be important for advanced economies to explain clearly how they will implement their monetary policies during the recovery. The chapter’s analysis also suggests that emerging market economies can reduce their vulnerability to adverse financial spillovers by adopting more transparent and rules-based monetary and fiscal frameworks.