IMF warns that divergences in recovery will leave persistent scars on the economy of those furthest behind

Several young people pass by the IMF headquarters in Washington this Monday.MANDEL NGAN / AFP

The exit from the coronavirus crisis seems increasingly feasible thanks to vaccines and the adaptation of the economy to the new reality, which have allowed a faster recovery than expected.

Despite the uncertainty surrounding the evolution of the pandemic, the political response with an unprecedented fiscal boost has spurred the improvement in economic activity.

For this reason, the Fund improves its global forecasts: the global economy will grow by 6% in 2021 and 4.4% next year, more than was estimated in October, when the International Monetary Fund (IMF) published its penultimate forecasts.

But the optimism reflected in the

World Economic Outlook

, the report for 2021 and 2022 presented this Tuesday at the IMF spring assembly, is clouded by shadows: the first of them, the delay in the recovery of emerging countries due to the difficulty access to vaccines (the first world, which accounts for only 16% of the world's population, holds 50% of the doses).

There will therefore be a multi-speed recovery, complicated by the uncertain course of the pandemic - with worrying directions in Europe, for example - and the appearance of new strains of the coronavirus.

It is no coincidence that the IMF has titled its spring report

Managing Divergences in the Recovery

.

And that the Fund warns that these divergences can leave persistent scars on the economy in the countries with the most difficulties.

“Thanks to an unprecedented political response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income countries have been hit the hardest. and they are expected to suffer more significant losses in the medium term, ”the Fund notes in its spring report.

"These divergent recovery paths are likely to create wider gaps in living standards in all countries compared to pre-pandemic expectations," adds Gita Gopinath, IMF chief economist.

After an estimated contraction of 3.3% in 2020, the global economy will grow 6% in 2021, and 4.4% in 2022. The forecasts are better than those indicated in January: the growth for these two years is, respectively, eight and two tenths higher than anticipated.

The IMF expects the US to exceed its pre-COVID level of GDP this year, while other rich countries will do so in 2022. Among emerging and developing countries, China achieved it as early as 2020, while others did not. They will do so until 2023, especially those dependent on tourism.

The agency estimates that the policies to combat the pandemic made it possible to add 6% to global growth in 2020.

A fall three times greater without stimuli

Compared with the forecasts made before the health and economic crisis, these divergent rhythms will widen the gap between developed countries and the rest.

The accumulated loss of per capita income between 2020-2022 compared to previous projections is equivalent to 20% in emerging and developing economies (except China, a separate case and, together with the United States, the locomotive of recovery), while in advanced economies will be 11%.

The collapse, however, would have been three times worse if the leading economies had not taken swift action, such as Washington's successive aid plans (three in one year, including the last one, worth 1.9 trillion dollars) or the Japan or European Union programs.

Collectively, the richest have injected $ 16 trillion in liquidity to avoid collapse.

However, the coronavirus has reversed progress in reducing poverty, with an estimated 95 million people joining the ranks of the extreme in 2020, in addition to condemning 80 million to malnutrition.

The rate of recovery varies even at the same income level.

If the US expects to return to activity levels at the end of 2019 in the first half of this year, Japan, on the other hand, will do so in the second.

European countries were able to save furniture from the tourist season in 2020, but at a high cost: a rebound in the virus that will weigh down 2021. By 2022, a 3.8% recovery is expected in the euro area (0.7% % higher than expected), and for the UK post-Brexit, a strong 5.1% (an improvement of 1.9%).

The report does not rule out the need for new lockdowns and restrictions in emerging and developing countries this year and next.

The exception is China, where "effective virus containment measures, a powerful public investment response, and a central bank injecting liquidity have made possible a very solid recovery."

The experience of previous recessions allows us to calculate how the situation will evolve in the medium and long term.

Unlike the 2008 crisis, which hit the advanced economies especially, the pandemic is hitting the rest especially.

The different speeds also discriminate between regions and population segments.

Young people and low-skilled workers are the most affected, as well as women and informal workers.

Acceleration in digitization and automation

Employment has also fallen the most in sectors particularly vulnerable to automation, as the pandemic has accelerated trends in digitization and automation.

Therefore, it is very likely, the IMF stresses, that these lost jobs will not be recovered, which will force the relocation of the unemployed to other sectors, with foreseeable wage cuts.

The American case is significant: of the 10 million jobs lost when the pandemic hit the country in the spring of 2020, only 1.6 million have been recovered.

And there are still 8.4 million fewer than in February 2020.

The race between the virus and vaccination also makes it possible to adjust the panorama in the short and medium term.

Immunization can improve prognoses;

the emergence of new resistant strains, make them worse.

The leadership of the United States, at the forefront of vaccination in the world, may drag its partners in the advances, but also seriously affect the weaker markets if, in principle against the forecast, the Federal Reserve decides to abruptly increase the rates of interest.

More investment in health and education

The Fund appeals, as basic guidelines, to greater investment in health and education, as well as to maintain fiscal stimuli.

“As long as the pandemic continues, [national] policies must prioritize health spending (in production and distribution of the vaccine, treatments and health infrastructure), as well as well-defined fiscal support to the most affected households and companies, which will leave gradually withdrawing to avoid sudden falls ”.

Education must correct inequalities caused by the emergency: the less wealthy countries lost 70% of their teaching hours, compared to 15% in advanced economies.

The world average is 50%.

When the pandemic passes, “political efforts can focus more on creating greener and more inclusive economies.

Investing in green infrastructures to mitigate climate change, increase social safety nets to mitigate inequality, increase productivity and adapt it to a more digitized economy and solve over-indebtedness ”are many other steps to avoid relapses.

But all of this requires funding, as highlighted by the ambitious infrastructure plan to modernize the US economy put forward by President Joe Biden.

It may be easier for the US, despite opposition from the business class, but for those countries with limited fiscal space, the key will be "better manage revenues, greater fiscal progressiveness, and redirect spending toward critical investments in health. social coverage and infrastructures ”in the medium and long term and containing borrowing costs.

Finally, and although without naming the contenders, the Fund considers it essential to resolve trade and technological tensions (nod to the US and China, but also to the EU in the face of the deployment of the 5G network), and finds, in the explicit case of both powers, the existing tensions "in intellectual property and cybersecurity."

It also warns of the risk of growing technological protectionism and especially in relation to medical supplies or scientific or pharmacological advances.

"Countries should cooperate against climate change, in digitization, modernization of international corporate rates and in measures to limit the cross-border transfer of benefits, as well as to avoid tax evasion," the report concludes.

The mention of international corporate rates seems like a welcome nod to US Treasury Secretary Janet Yellen and her proposal for a global minimum corporate tax for multinationals, formulated white on black just 24 hours before the Fund reveal its roadmap for navigating the long-lasting undertow of the pandemic.