IMF Hikes World Growth Forecast, Small Business Optimism Sinks

Last week the International Monetary Fund (IMF) raised its forecast for 2021 global economic growth to 5.5%, up from its last estimate of 5.2% in October. Obviously, the IMF expects a strong rebound in 2021 following last year’s global loss of 3.5%. The IMF is the global lender of last resort to countries in distress.

Let me begin by emphasizing that any economic growth estimates you see right now and just ahead should be taken with a grain of salt. With COVID-19 rising again in almost all developed countries, and with new strains of the virus increasing rapidly in many countries, all of the recent economic forecasts are just educated guesses at best.

The IMF admitted its upwardly revised global estimate last week was based on hopes for increasing vaccinations and improved therapies to combat COVID-19, which sparked widespread economic lockdowns last year. But the international lender also warned its latest forecast could be way off the mark if the coronavirus continues to mutate and spread.

IMF Chief Economist Gita Gopinath said in a press briefing last week: “Much depends on the outcome of this race between a mutating virus and vaccines, and the ability of policies to provide effective support until the pandemic ends. There remains tremendous uncertainty, and prospects vary greatly across countries.”

I was also quite surprised to see the IMF raise its 2021 growth forecast for the US from near 3% in October to 5.1% last week. Obviously, the IMF is discounting a double-dip recession in the first half of this, which may be a reasonable position assuming  more federal stimulus is coming out of Washington just ahead.

The IMF is also discounting a recession or a slow patch for the US economy in the second half of this year when the effect off the expected stimulus just ahead may have largely worn off. The IMF also increased it forecasts for Japan and Latin America, while trimming the Euro area.

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