IMF Upgrades World Economic Growth for 2021

on Jan 27, 2021
Updated: Dec 19, 2022

One of the most expected reports of the start of the year is the World Economic Outlook. The release covers the estimate for 2020, as the final data is not available, and estimations for economic growth for the current and the next year.

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Unsurprisingly, the United States leads. Out of the advanced economies, the United States economy contracted only -3.4% in 2020. While in any normal year, such a performance would be considered disastrous for the largest economy in the world, it was not the case in 2020. In 2020, all economies suffered from a global recession and, in some cases, outright economic contraction.

Key Take-Aways From Yesterday’s IMF World Economic Outlook

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One of the first things that strike the eye is the resilience of the U.S. economy in the face of the COVID-19 adversity. While the economy did contract by -3.4% in 2020, the IMF report upgraded the 2021 growth rate since the last report in October of last year. More precisely, the IMF sees the U.S. economy growing in 2021 more than initially thought, upgrading it to 5.1% from the 3.1% estimated in October of last year.

It makes one wonder what changed since October 2020 that the IMF revised the U.S. growth by 2%? Three things come to mind.

One, and the most important one, is the November announcement that vaccines against the COVID-19 virus are efficient. From that moment on, the stock market cheered the news, and people started to see the light at the end of the tunnel.

Another is the Biden and the Democratic party victory. The new administration is viewed as providing more stimulus to an economy that is already projected to reopen faster.

Finally, the vaccination rate. The United States currently inoculates one million people/day and has enough vaccines in the pipeline to reach herd immunity by summer or early autumn. In the face of such facts, the upgrade makes sense.

Japan’s economy was upgraded as well, albeit less than 1% – from 2.3% to 3.1% growth in 2020. The same reasoning goes for the Japanese economy.

The only advanced economies downgraded were the Euro area economies – from 5.2% growth to 4.2% growth. It may not look at much, but when you go against the overall trend, the currency market tends to react to it the fastest. This is macro-data, and the dollar should shine against its counterparts as the Fed will simply have no reasons to keep the monetary policy accommodative for longer, should the IMF projections materialize.