IMF World Economic Outlook: A Diverging Growth Path For Emerging Markets

The IMF’s latest World Economic Outlook update provides a glimmer of hope. After the 3.5% contraction in 2020, global growth is set to rise by 5.5% in 2021 and 4.2% in 2022. In contrast to the October update, this marks a shallower contraction and an upward revision for 2021 growth thanks to vaccines and stimulus support.

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On an individual country level, there are substantial divergences, both in the growth outlook and in the revisions undertaken in the update.

IMF growth projections for 2020-22 across country groups and region (% YoY)

Source: IMF World Economic Outlook Update (January 2021), ING - * Fiscal year basis for Egypt, India, and Pakistan 

Fiscal stimulus and vaccine rollout give advanced economies a boost

The improved 2021 growth outlook is largely down to advanced economies which will grow by 4.3% (+0.4ppt vs October 2020 update), thanks to rapid vaccine rollout and supportive fiscal stimulus.

In particular, this has resulted in substantial upward revisions for the US (5.1% vs 3.1% in October 2020) and Japan (3.1% vs 2.3%), which make up for the lower projections for the Euro Area (4.2% vs 5.2%) and other advanced economies which are affected by rising infection cases and longer lockdowns.

Advanced Economies: Growth forecast for 2021 and 2022

Source: IMF World Economic Outlook Update (January 2021), ING 

EM Asia runs ahead, Latin America recovery stands out

On aggregate, emerging market and developing economies (EMDE) have also seen upward revision to growth of 6.3% (+0.3ppt), but the divergence in prospects remain. (regions sorted by growth levels in 2021):

  • Emerging and Developing Asia (+8.3% in 2021; +5.9% in 2022) remains the growth locomotive of the emerging and developing world in 2021, led by India (which saw a 2.7ppt upward revision to a whopping 11.5% for the fiscal year ending March 2022) and China (+8.1%).
  • In contrast, most larger ASEAN economies are expected to see a delayed recovery, with downward revisions in the 0.8-1.3ppt area for Indonesia (+4.8% in 2021), Malaysia (+7.0%), the Philippines (+6.6%), and Thailand (+2.7%).
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