Transcript

Transcript of the World Economic Outlook Update Press Briefing

July 27, 2021

SPEAKERS:

Gita Gopinath, Chief Economist and Director of the Research Department, IMF

Petya Kovea-Brooks, Deputy Director, Research Department, IMF

Malhar Shyam Nabar, Division Chief, Research Department, IMF

Moderator: Jennifer Beckman, Senior Communications officer, Communications Department, IMF

MS. BECKMAN: Thank you for joining the Press Conference for the IMF’s World Economic Outlook Update. I’m Jennifer Beckman of the IMF’s Communications Department. We’re joining you here from the HQ2 Atrium, where we hold the Annual and Spring Meetings. Many journalists will be familiar with this space. I’m joined here by the IMF’s Chief Economist, Gita Gopinath, the Deputy Director of the Research Department, Petya Koeva Brooks, and the Head of the World Economic Studies Division, Malhar Nabar. Gita is going to begin with some brief remarks and then we’ll turn to your questions.

MS. GOPINATH: Thank you, Jennifer, and thank you, all, for joining this Briefing. The global economic recovery continues, but with a widening gap between advanced economies and many emerging markets and developing economies. Our latest global growth forecast of six percent, for this year, is unchanged from the previous Outlook, but the composition has changed. Growth prospects for advanced economies this year have improved by half a percentage point, but this is offset exactly by a downward revision for emerging markets and developing economies, driven by a significant downgrade for emerging Asia. For 2022, we project global growth of 4.9 percent, up from our previous forecast of 4.4 percent. But again, underlying this is a sizeable upgrade for advanced economies and a more modest one for emerging markets and developing economies.

Now, these revisions reflect, to an important extent, differences in pandemic developments, as the Delta variant takes over. Now, close to 40 percent of the population in advanced economies has been fully vaccinated, compared with 11 percent 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 renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades.

Divergences in policy support are a second source of the deepening divide. We are seeing continued sizeable fiscal support in advanced economies, with $4.6 trillion of announced pandemic related measures available in 2021 and beyond. The upward global growth revision for next year largely reflects anticipated additional fiscal support in the United States and from the next-generation European Union funds.

Now, on the other hand, in emerging markets and developing economies, most measures expired last year, and they are looking to rebuild fiscal buffers. Some emerging markets, like Brazil, Hungary, Mexico, Russia, and Turkey, have also begun raising monetary policy rate to head off upward price pressures. Now, aftershocks from the upheaval of last year posed unique policy challenges. Pent up demand and supply chain bottlenecks are putting upward pressure on prices. Nonetheless, in most advanced economies, inflation is expected to subside to pre-pandemic ranges next year, for the following reasons.

First, a significant fraction of the abnormally high inflation readings is transitory, resulting from pandemic-affected sectors, such as travel and hospitality, and from a comparison with last year’s abnormally low readings, such as for commodity prices. Second, overall employment rates remain well below pre-pandemic levels in most countries. And while there has been rapid wage growth in some sectors, overall wage growth remains within normal ranges. As health metrics improve and exceptional income support measure expire, hiring difficulties in certain sectors are expected to abate and ease wage pressures. Third, long-term inflation expectations remain well-anchored.

Now, this assessment is subject to significant uncertainty, given the uncharted nature of this recovery. More persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation. Moreover, inflation is expected to remain elevated next year, in some emerging markets and developing economies, related, in part, to continued food price pressures and currency depreciations that are creating yet another divide. While more widespread vaccine access could improve the outlook, risks on balance are tilted to the downside.

The emergence of highly infectious virus variants could derail the recovery and wipe out $4.5 trillion, cumulatively, from global GDP, by 2025. Financial conditions could also tighten abruptly, if there is a sudden reassessment of the monetary policy outlook, especially in the United States. A worsening pandemic and tightening financial conditions would inflict a double blow to emerging markets and developing economies and severely set back their recoveries.

Now, moving onto what needs to be done. To start with, multilateral action is needed to ensure rapid worldwide access to vaccines, diagnostics, and therapeutics. Now, this would save countless lives, prevent new variants from emerging, and add trillions of dollars to global economic recovery. The IMF staff’s proposal to end the pandemic, which was jointly endorsed by the World Health Organization, the World Bank, and the World Trade Organization, sets a goal of vaccinating at least 40 percent of the population, in every country, by the end of this year, and at least 60 percent by the middle of next year, alongside ensuring adequate diagnostics and therapeutics, at the price of $50 billion.

To achieve these targets, at least one billion vaccine doses should be shared in 2021 by countries with surplus vaccines, and vaccine manufacturers should prioritize deliveries to low and lower-middle income countries. It is important to remove trade restrictions on vaccine inputs and finished vaccines and make additional investment in regional vaccine capacity to ensure sufficient production.

A related priority is to ensure that financially constrained economies maintain access to international liquidity. To ensure this, major central banks should clearly communicate their outlook for monetary policy and ensure that inflation fears do not trigger rapid tightening of financial conditions. A general allocation of special drawing rights, equivalent to $650 billion, as proposed by the IMF, should be completed quickly, so as to provide liquidity buffers for countries and help them address their essential spending needs.

Finally, greater action is needed to ensure that the G20 common framework successfully delivers on debt restructuring for countries where debt is already unsustainable. Now, the other major shared challenge is to reduce carbon emissions and slow the rise in global temperatures to avoid catastrophic health and economic outcomes. This requires a multipronged strategy with carbon pricing as a centerpiece, coupled with green infrastructure push and subsidies for research into green technologies. All of this will be needed to lower carbon dependence. So far, only 18 percent of recovery spending has been on low carbon activities, and much more will be needed.

Policy effort at the national level should continue to be tailored to the stage of the pandemic, first, to escape the acute crisis by prioritizing health spending, including for vaccinations and targeted support for affected households and firms, next, to secure the recovery with more emphasis on broader fiscal and monetary support, depending on available space, including remedial measures to reverse the loss in education, and, finally, to invest in the future by advancing long-term goals of boosting productive capacity, accelerating the transition to lower carbon dependence, harnessing the benefits of digitalization, and ensuring the gains are equitably shared.

Fiscal actions should be nested within a credible medium-term fiscal framework to ensure debt remains sustainable. In the case of monetary policy, central banks should avoid prematurely tightening policies, when faced with transitory inflation pressures, but should be prepared to move quickly, if inflation expectations show signs of de-anchoring.

The recovery is not assured until the pandemic is beaten back, globally. Concerted, well-directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries or one where divergences intensify, the poor get poorer, and social unrest and geopolitical tensions grow. Thank you.

MS. BECKMAN: Thank you, Gita. For journalists who are watching online, you have two ways to submit your questions today. Some of you have joined us in the WebEx, and please use the “Raise Your Hand” function, or you can type in the chat, if you’d like to ask a question. And colleagues who have joined on the Online Media Briefing Center can type their questions in there.

QUESTIONER: Hi. Thank you very much for doing this. I have a question regarding the Delta Variant. So, how big a concern is the Delta variant in the forecast in global economic recovery? And where are we in this race, that, Gita, you described earlier, between vaccination rollout and the virus mutant? Thank you.

MS. GOPINATH: The Delta variant is the dominant variant right now, around the world, and it has already affected our forecast. For instance, the downgrades that we have for emerging Asia, several of the countries there, including India, come because of the Delta variant and the rising number of cases that we are seeing in many parts of the world, including in Indonesia and Malaysia. You know, in the U.S., we are seeing cases going up again. So, that is an important concern, and I think, even though we have incorporated some of it into our forecast, there is still an important downside risk, depending upon how this evolves in the future.

In terms of the race between the virus and vaccines, of course, good news is that the vaccines that we have work, which means that even, you know, even with the new variants, at least when it comes to hospitalizations and death, these vaccines provide protection, and that’s why they are effective, and that’s the good news. The not so good news is the fact that there still remains highly inequitable access to vaccines. There have been about three and a half billion shots in the arm, so far, but most of them have gone to a few countries, and you have many low-income countries and developing countries, where even health workers haven’t been fully vaccinated.

And this is exactly what needs to change. And like I said, among the things that need to be done, first and foremost, is to make sure a billion vaccine doses are made available from surplus nations to the countries that need them now. About half a billion has been announced, in terms of vaccines being provided, but we still need to close that gap. And also, we need to make sure that the deliveries happen now, as opposed to happening much later in the year or even into next year. This is probably the most urgent multilateral action that’s needed.

MS. BECKMAN: Thank you, Gita. For our next question, let’s turn to WebEx.

QUESTIONER: So, a couple of questions, one on Asia, particularly Southeast Asia. Obviously, India is a special case. It’s been struggling a lot. You have China pulling back of its fiscal support. But Southeast Asia is a big economic engine for the world. A lot of countries there are big exporters. They are -- you’ve got them marked down, Vietnam, Malaysia, Indonesia. What is going on there? Is this a case of the virus just, you know, outpacing the vaccinations here? And then also, secondly, on inflation, if you could just -- you seem to be saying two things here, that you think it’s transitory, but then there are some major risks. I’m wondering if you can dig into that a bit more, as to what -- when will those risks be more apparent, and what will be the signs you’ll be looking at to determine whether or not it’s -- it is transitory or it is a more lasting inflation picture? Thanks.

MS. GOPINATH: In the case of East Asia, the reason for the downgrades and the biggest risks on the horizon are, indeed, the virus and the pandemic. And we are seeing cases going up. And we know, with the Delta Variant, they can go up exponentially. So, that is one of the major factors for -- behind the downgrade.

When it comes to an issue of inflation, it is, indeed, what you said, which is our baseline is one where we expect inflationary pressures to be transitory. But, of course, there are risks involved. Now, again, when I speak about inflation, you have to be careful because there are -- there is -- they’re in different parts of the world. Now, if you look at the advanced economies, and if you think of core inflation, it’s mostly in the U.S., that we are seeing very high inflation readings. It's not an issue in the Euro area. If you go to -- even if you go to emerging markets like China, that's not an issue. So again, the reason we think there's enough of -- there is these transitory pressures is because this is a very odd recovery. We are seeing pent up demand being released at the same time that we have supply side bottlenecks that are combining to generate price pressures.

We're started off on very low base prices last year. That's also leading to an increase in inflation pressures. And while we are seeing wages going up for some sectors, we are not seeing that as a broad-based phenomenon and inflation expectations are anchored. So again, we are in a good place right now in terms of these pressures which are likely to be transitory.

However, you know, we still aren't out of the woods yet. If it turns out that these supply bottlenecks are long lasting and that you have few more readings of very high inflation and that the inflation expectations of that could have more persistent effects. Which is why we mentioned that there are still risks to inflation coming up and being more persistent than what we are anticipating at this point.

MS. BECKMAN: Thank you, Gita. For the next question, we are turning to the Webex as well.

QUESTIONER: Yeah, hi thanks very much, guys. Just wanted to zone in on the UK because you've given the UK the biggest, of all your published forecast provisions, the biggest upgrade of all. I wondered if you could just explain what has driven that upgrade and if you have any comparison relative to pre-pandemic levels of GDP whether when we are going to return to that level and, you know, where we are in the pecking order of the G7.

And just a general thing on inflation. You mentioned house prices are at risk to the inflation outlook. I just wondered if you could sort of dig a little deeper into, you know, just expand on that point. How do house prices feed into the inflation risks?

MS. GOPINATH: So the UK, yes, we've had a sizeable upgrade. It reflects to an important extent, the fact that if you look at monthly GDP numbers that came out February through April, they came out stronger than we expected. So basically in the case of the UK, there was a period of where there were restrictions in place. They were being slowly relaxed but there was greater adaptability to those restrictions and we saw economic activity coming back somewhat stronger than we had expected. So that is one of the reasons for it and, you know, UK vaccines are going very strongly so that is a good, you know, that helps with the recovery and that will be a big positive.

In terms of the overall trend for the UK, we had that in terms of the long term scarring at least which is a number I like to look at which is around 2025, medium- term scarring, not long-term, but medium-term scarring 2025. We still have about a 3 percent projected gap between where we expect UK to be relative to the pre-pandemic trend. So there is still a gap to be filled over there and there's a combination of factors including weaker investment, there are Brexit-related forces in there too. So relative to other countries in Europe, there was somewhat more scarring than we had projected in our projections.

In terms of housing prices, what we have seen if a very sharp increase in housing prices. Now this is not the first time this has happened. This has happened in other years in other parts of the world too and in the U.S. too in the past. The question is whether we see that showing up in consumer price inflation which is showing up through owner-occupied rents and that comes with a lag.

And so, while we think some are in uptick now, it's still too early to say whether we're going to see continued uptick in the rent component of CPI. And since that's a big part of CPI in the U.S., that could have an important impact on the headline numbers. But again, there is uncertainty around that at this point.

MS. BECKMAN: Thank you, Gita. Next, I'd like to turn to the Webex.

QUESTIONER: Thank you very much. Good morning, Gita. I had a country specific question about Japan, the Olympic games particularly. The Olympic games are being held with virtually no visitors from outside the country. How much impact did you factor in for the economic role in 2020 and there-after. And in other words, if games were held as originally planned, how much growth did the IMF estimate? Thank you.

MS. GOPINATH: For Japan, we have a downgrade but that's mainly because of the extended state of emergency that Japan has been because of the pandemic. That's what's driven the downgrade. We actually have not included in our update, we don’t have the most recent state of emergency that was announced for Tokyo so we don't have that in there. So there's a further risk, a downside risk coming from that.

So I would say that for the growth numbers, it's been the pandemic related story. To your specific question about the Olympics, since most of the infrastructure spending was done in the past and that has had the biggest kick on GDP, that's already in the past. The question is now what will be the hit because of fewer spectators, fewer international travelers. And most market estimates put that at a very small number of less than .1 percent of GDP. So we don't, you know, this is not the biggest factor for our growth projections.

MS. BECKMAN: Thank you, Gita. I'm going to turn now to some questions that have been submitted in the media briefing center. The first one asks, in the WEO update, the IMF has revised up the projection for Russia for this year and downgraded it for next year. Could you please provide some details regarding this analysis? And in general, how do you evaluate Russia's efforts to deal with the economic consequences of the pandemic?

MS. GOPINATH: In the case of Russia, we have seen faster recoveries. So the first quarter GDP growth has come in stronger than we were expecting and because of that, it has led to an upgrade. Of course, there are still challenges ahead. The pandemic is not over.

We have seen cases going back up. Vaccination rates are, you know, vaccines are progressing but still the coverage is incomplete and so there is much more that needs to be done on that front. Let me also now bring in Petya to see if she would like to add something on Russia.

MS. BROOKS: Sure, thank you. We are expecting growth this year to be around 4.4 which is an upward revision of .6. Now we also expect that growth rate to moderate next year and we have revised the number for 2022 by .7. And one way to just think about this is just that the recovery is happening earlier than we had anticipated. As already mentioned, we are seeing signs of that strength and it's not just the manufacturing sector but also the reopening of the economy and the strength of the service sector.

MS. BECKMAN: Thank you, Petya. I'm going to take another question on the media briefing center. ‘What is the growth projection for Argentina?’

MS. GOPINATH: For Argentina, we also have an upgrade for in terms of the growth numbers. Argentina has benefitted from a surprising increase in its export prices as we have seen food prices go up internationally. That positive effect coming through the push is getting through export prices is helping with Argentina's recovery. For the specific numbers, I'm going to see if Petya, would you like to add the specific numbers in there?

MS. BROOKS: Sure. So after the collapse in output last year of - 9.9, we are actually expecting growth this year to be 6.4 and to moderate to about 2.4 in 2022. And for this year, we do have a sizeable upgrade of about .6 as a result of what Gita mentioned. And in terms of the reasons for the upgrade, I should also add that the vaccine rollout has actually been faster than what we had previously anticipated. And trading partner growth, especially in Brazil, has been very helpful in terms of propping up growth.

MS. BECKMAN: Thank you, Petya. You mentioned Brazil. The next question asks, ‘What were the reasons that the IMF decreased the projection for Brazil's GDP in 2022 from 2.6 to 1.9?’

MS. GOPINATH: So before I talk about next year, I think it's important to point out that we have a significant upgrade for Brazil for this year. So part of the reason why we have a downgrade for next year is we are moving up the recovery to 2021 for Brazil. So we're seeing, you know, a faster recovery in Brazil than what we had anticipated.

If you look at quarter one GDP growth, if you look at the high frequency indicators right now that we are seeing, we've seen the recovery return more strongly than we had expected. Brazil is another country that's benefitting from the rise in commodity prices, so through its export prices it's benefitting through that channel.

It's also benefitting, of course, from strong recoveries in its trading partners including in terms of U.S. and China. And so, these are the factors that have led to the upgrade. I mean that said, there are headwinds in the horizon. Of course, the pandemic is not over. It's still around and you're seeing various variants and you're seeing more cases going up in many parts of the world and that is an issue.

We had a massive third wave in Brazil and that is coming down. But again, for now in terms of our upgrade, we have an upgrade for this year and that's offset by a downgrade for next year because we moved the recovery up some.

MS. BECKMAN: Thank you, Gita. So at this point, I'm going to turn back to the Webex.

QUESTIONER: Yeah, thank you, Gita. So a follow up on the inflation. There is a heated debate on whether the rising inflation will become persistent, particularly in the U.S. But in the meantime, benchmark (inaudible) is similarly sending signal in the other direction. So what will make you become more worrisome on the inflation front?

Also, IMF estimates that China will achieve 8.1 percent and a 5.7 percent growth rate in this year and next. So could you elaborate on the reason for the revision? Thank you.

MS. GOPINATH: Well, our inflation focus for the U.S. are to have, you know, a high inflation reading this year, around 4 percent. But then by the end of next year, we expect core personal consumption expenditure inflation to come down to around 2.5 percent. So our baseline is very much the case where we expect a lot of the inflation prices to be transitory and then to return to much more normal ranges next year.

In terms of what would be concerning, it would be if the case where if we saw medium-term inflation expectations de-anchoring. So if they were moving kind of durably away from the Fed's 2 percent target and, you know, moving in a way that we haven't seen before, then that would indeed give absolutely give, you know, cause for concern. Because that would be the sign that what we're seeing right now is no longer transitory but it could show up in more persistent inflation because it's going to enter wage contract, it's going to enter pricing contracts and so on. So that's the main one.

In the case of China, we have a small downgrade for China for this year and a very slight upgrade for next year. The downgrade for this year which is -0.3 is basically coming from the fact that fiscal support was somewhat smaller than we were expecting in China. And so, that's behind the revision down.

In terms of the revision up, that comes from just better external demand. As we're seeing for global growth, we have an upward revision as a whole for next year and that, of course, helps China too because it's a major exporter. So again, that's where the upgrade is coming from.

MS. BECKMAN: Thank you, Gita. So I have a question online ‘What are reasons behind the slight improvement in the IMF's projection for the MENA region this year and why the decline next year? And to add to that, we have another colleague from Egypt in the Webex, who has a related follow up to that question. We would like to take your follow up question to this question on the outlook for the MENA region by your specific question on Egypt if you can unmute yourself. So Gita, while we sort this out, maybe take the general regional question.

MS. GOPINATH: Yes, so for the MENA region, of course, there's not one single story. There are very different prospects depending upon whether you're an oil exporter or you're not, how heavily you rely on tourism. And so more broadly, what we have is for oil-exporting countries as a whole, we have a downgrade. But that is kind of driven by a downgrade for Saudi Arabia. Where we have seen in terms of the level of production of oil, we have seen you know, a decline. So, that, that's the area where we have a -- for Saudi Arabia, we have a downward revision. Of course, the non-oil sectors are doing well because of the higher commodity prices.

Then, we are seeing very different levels of vaccination rates in the MENA Region. And that is again, a source of a growing gap. Let me also ask, Petya, if she would like to add anything here, on the MENA Region?

MS. BROOKS: Just perhaps, to put this in the context of the numbers, we are expecting this year for the growth rate in the MENA Region to be in the order of 4.1 percent. Which is, I would say, a very slight revision relative to our previous forecast.

MS. BECKMAN: Thank you, Petya. I will go to another question in the Webex.

QUESTIONER: Yes, good morning. Thank you, Dr. Gopinath. I wanted to ask about the trade complications that we are seeing at the moment in terms of logistics, the bottlenecks that we are seeing, the increased wait times, the backups at ports globally, and what all of that is doing in terms of the impact on inflation. And any concerns that it may be causing in terms of holding back growth for this year, and for next. Thank you.

MS. GOPINATH: There are indeed serious supply disruptions and breakdowns of supply chains. If you look at delivery times, for instance, to the U.S., or to the Euro area, they have gone up. If you look at shipping costs, they are also at very high levels. So, we are certainly seeing these kinds of disruptions. Some of it is pandemic related. Some of it is just mismatch between shutting down economic activity last year in a pretty draconian way. And then, now, having to meet the sudden surge in pent-up demand.

So, again, this is -- this is a very, very, unique set of factors that we haven’t seen before in any previous recovery coming out of recessions. So, these kinds of supply/demand mismatches are a problem.

So, this has fed into inflation, and we have seen that. Absolutely, we see that in you know, in sudden inflation readings, in producer price inflation we are seeing that show up. But we are also seeing this in terms of the real numbers. So, for instance, if you look at industrial production activity, we are seeing manufacturing, we are seeing some slowing that is happening because of insufficient chips. That is affecting the car industry. So, we are certainly seeing that these are having both effects on economic activity, but also, on inflation readings.

With that said, again, we expect that towards the end of this year, much of this will be ironed out. Again, subject to the caveat that we don’t have another massive fourth and fifth wave in many parts of the world.

MS. BECKMAN: Thank you, Gita. Now, staying in the Webex, another question.

QUESTIONER: Hi, thank you. I would like to ask a Nigeria-specific question. Could you please, elaborate on your growth projections for Nigeria for the rest of the year, and 2022? As well as could you -- are there any available funds for Nigeria to access at this time, so that we can accelerate growth to Nigeria? And also, what are the urgent fiscal and monetary policies you would suggest to actually accelerate growth again in Nigeria? Thank you.

MS. GOPINATH: Okay, thank you for your question. I am going to ask Malhar to respond to it.

MR. NABAR: Sure. In terms of our forecast for Nigeria this year, we have maintained an unchanged forecast of 2.5 percent. And we have upgraded slightly for 2022, to 2.6 percent. The reason for the unchanged forecast for this year is because it's a product of opposing developments. We saw activity, as elsewhere, respond a lot stronger than what we had expected earlier in the year. But looking out ahead, we think that the uptick in cases in the rest of the continent is going to pose a downside risk factor and is going to drag on growth going forward.

In terms of our upgrade for 2022, it's related to the improvements in terms of trade. The oil production that we expect to increase going forward, which will lift growth for 2022. It is also predicated on continued improvements in external financial conditions, which have, despite some bouts of volatility recently, have actually been fairly supportive of growth, and it's important that that continues in order for this growth forecast to pan out.

I should also add that Nigeria has been a beneficiary of IMF funding, it has accessed our emergency financing facilities last year, and that is also contributing to -- to this outlook by alleviating some of the liquidity needs that the Nigerian economy has faced.

MS. BECKMAN: Thank you, Malhar. The next question is: ‘Looking at Egypt, can you tell me how the IMF reads the inflation rates, taking into consideration, the global inflation rate? Is inflation rising with the vaccination process? And does that feed into the downgrade for Egypt in the WEO Update?’

MS. GOPINATH: So, I will just broadly comment on the phenomenon of inflation for emerging markets and developing economies. We are seeing, for several of those economies, is that because of a combination of factors, including their currency weakening, we are seeing some very high inflation readings. And several of these countries have actually started raising interest rates because of the concern that these inflation pressures could become persistent. And this is -- this is a concern so I would make a distinction between emerging and developing economies, and a lot of advanced economies, where again, you -- in advanced economies, you watch the inflationary pressures. But in emerging and developing economies, we are seeing this show up and markets are expecting that interest rates will go up, actually, much faster than in the advanced economies.

But let me ask Petya, to come in on -- specifically, on Egypt.

MS. BROOKS: Sure, happy to. So, the first thing to say is that the Egyptian Economy has actually, been quite resilient in the face of the significant shock that it has experienced. And the downgrade that was referred to the '22 number should also be put in the context of an upgrade for the 2021 numbers. So, again, as in some other countries, what we are seeing is in some ways, an earlier recovery and we have seen positive data surprises that have underpinned our revised projections for -- for this fiscal Year.

Now, when it comes to inflation, Egypt is a country where we are seeing now inflation at around 4.9 percent, if I recall the most recent numbers. And the inflation target had actually been reset to be now at about 7, with a band of 2 around it. So, then you look at it this way, actually inflation is at the lower end of the inflation and inflation band.

So, more generally, our recommendation is to continue the data-driven approach to monetary policy, which is something that the Central Bank has been doing over the past months.

MS. BECKMAN: Thank you, Petya. I am going to take one more question online asking about the upward revision for Mexico's GDP this year, and next. ‘What are the factors that are improving the outlook there? And looking at the fiscal update, the IMF has also lowered the forecast for the gross debt and fiscal balance. What is behind all of this?’

MS. GOPINATH: So, Mexico has -- is recovering well. We have an upgrade for Mexico this year. In the past, we made the point that a lot of Mexico's recovery was coming from the external sector because of its trade links with the U.S. But now, what we are seeing is domestic demand come back up, a demand for services, it has gone up. So, because of that, we are seeing stronger recoveries than we expected. Mexico will again, benefit if there are these additional packages deployed in the U.S., that would generate demand spillovers to Mexico. And that would have a positive effect again.

Vaccination rates are picking up and that will help with the pandemic over the next several months. In terms of your question about why are the debt-to-GDP numbers coming down? That's basically a reflection of the fact, to an important extent, a reflection of the fact that we are upgrading our GDP numbers for Mexico.

MS. BECKMAN: Thank you, Gita. So, I'd like to return to the Webex.

QUESTIONER: Good morning, Gita. Let me ask about the work-from-home phenomenon. It is said by some the greatest revolution in the way we work in -- since the development of the automobile. What are the implications of this for the global economy? I ask that in the context of the U.S. We are growing at 7 percent or have been. Is this a plus or a minus for global economic growth?

MS. GOPINATH: That's a very interesting question. And I think you know, the jury is still out on what is the optimal mix of in-person, and you know, workplace interaction versus working remotely. I mean, there are certainly benefits from working remotely in the sense that you know, your productivity goes up, you just have to commute a lot less. You are able to do many more things at the same time if you don’t have to move around from one place to another. And so, there is that effect on productivity that can come through that channel. But on the other hand, if you want to think of creative endeavors and new ideas coming out, that usually comes around when you have people working closely together and you know, you have a spark.

So, every company, every organization will have to decide what the optimal mix is. And also, to integrate people into the workforce to kind of get those connections going, it is harder to do that remotely. But I do see you know, there I think increasingly, just looking at surveys, I mean, everybody has realized that there is a lot that can be done remotely and more productively. And since we want every possible channel of increasing productivity, including in the U.S., this is certainly one very important area to explore.

MS. BECKMAN: Thank you, Gita. So, we only have time for two more questions.

QUESTIONER: Hi and thank you for taking my question. Hello, Gita. I would like to ask some questions about the policies. Because of the 7 percent growth rate in 2021, some are concerned about -- has concerns that the economy will slow down more in 2022, even though the economic growth rate is relatively high. So, other than vaccine promotion here, what other policies do you think are needed to bring the economy to a slow and soft landing on normal track in the medium term? Concerning the level of debt, advanced countries are already running low on fiscal capacity. And thank you, very much.

MS. GOPINATH: So, we have global growth at 6 percent this year. The 7 percent number you mentioned for the U.S. So, indeed, we have some very large growth numbers this year, but again, that is coming down -- coming back, you know, reflects the fact that we are coming back from a very deep recession for the global economy, a historic recession last year. And so, we will see these very-large readings. They will of course, moderate over time. Yeah, there is still a lot of growth in the global economy. Next year, we have global growth projected at around 4.9 percent which is much higher than the typical growth numbers of around 3 percent or so, which proceeded this pandemic.

So, we still have growth momentum in here, but again, it's going to slow down. The important thing is of course to keep in mind is when you look at medium-term growth projections for the world, those are not very different from pre-pandemic. We still have growth for instance, for the U.S. that is supposed to be at you know, somewhere around 2 percent, less than 2 percent for Japan. Again, lower than 1 percent for the Euro area, again, less than 2 percent. So, the medium-term growth which was weak -- kind of subdued or weak before the pandemic, remains the case. So, that hasn’t changed.

So, we still need policies that raise productivity, efficiency that brings in greater innovation. And all of that is needed. And we see many countries working towards that true -- greening their economies, that is hugely important for the climate, for addressing the risks from climate change, those kind of investments can create jobs but also, raise productivity.

Digitalization is a very important investment that countries could make. So, all of this will be required in terms of bringing back as stronger medium-term growth.

MS. BECKMAN: Thank you, Gita. Now for the last question

QUESTIONER: Hi, thank you for taking my question. I wanted to ask -- to circle back to this issue of the divergence. Particularly, the developing world and how -- what your basic outlook is, is that a negative outlook? (Audio skip) -- so, and would that sort of lead to further divergences (phonetic)? And on that front, where does the issue stand with the SDRs particularly with the -- (audio skip) -- allocations in the wealthiest countries -- (audio skip) -- help them cope with the downturn (phonetic)? Thank you.

MS. GOPINATH: Okay. I don’t think I heard 60 or 70 percent of the question, but I am going to assume it is a combination of the diverging recoveries and SDRs. That's the two words I picked up, so okay, in terms of the divergences, that is one of the main messages of this WEO Update. Which is that while the global economy, in terms of growth, is projected at 6 percent, which is unchanged from April.

The composition has changed. We have an upgrade for advanced economies, offset entirely by a downgrade from emerging and developing economies.

And that is the big concern. Because it was already diverging, and that is exacerbated in this period. It is a reflection of some very big fault lines that are growing. Which is one, inequal access to vaccinations. The second is that fiscal support is much easier to maintain in advanced economies which have easy access to financing. But on the other hand, for many developing countries, it is either already over and they are pulling back. And again, in terms of risks that come with food price inflation, inflation in general, that is leading interest rates. So, these are very important divides that are widening.

We have the IMF proposal to make an SDR allocation of 650 billion, a general allocation of SDRs that we hope will be completed relatively soon, sometime in August, and that is very important to go through because we know that that will help countries build up their reserves, build up their buffers, provide them the liquidity that they will need to deal with these incredibly challenging times.

MS. BECKMAN: Thank you, Gita. And thank you, to all the journalists who joined us online and also submitted questions. That concludes this Press Conference for the World Economic Outlook Update. All documents are all available online if you would like to read them further.