The World Economic Outlook for 2021 Revised Upward – The Imbalance behind The Economic Recovery Path Will be a New Risk

On April 6, International Monetary Fund (IMF) revised the world economic growth forecast in 2021 to 6%, up from 5.5% announced in January. IMF stated that economic collapse was prevented by large-scale economic measures against the COVID-19. Then they forecasted that the long-restrained cumulative demand will start to be more visible as the vaccination spread more widely. Also, they appreciated the massive-scale additional economic measures amounting to 210 trillion yen by President Biden of the U.S. for the reason that the spillover effects were expected not only on the U.S. but also on trade partner countries.

A week before the IMF’s announcement, the World Trade Organization (WTO) also showed their confidence in economic recovery by making an announcement regarding the world trade in 2021 that they had estimated, the amount of trade would be recovered led mainly by the Europe, North America, and China, and would achieve an 8% increase from the previous year. At the same time, however, they also expressed their concern that only increasing of public spending is not enough to end the economic crisis, considering the current situation where we are unsure about when the pandemic would be over due to the spread of the new variant of coronavirus and many other factors. Moreover, the organization pointed out that the best economic policy is to make the vaccination more widely and equally available in all countries and regions including emerging countries and developing countries. IMF also expressed their agreement to this point and commented that they would strongly request developed countries to support the infection prevention of emerging countries or countries with low income.

On the other hand, IMF also expressed the concern about an economic recession due to the sudden policy change for financial reconstruction that includes the tax increase and the cut of increasing government spending, and called on each country for “soft landing.” Regarding the financial problems, Janet Louise Yellen, the U.S. Secretary of the Treasury, also mentioned from a different viewpoint that large-scale investment is necessary to cope with the economic crisis for which enough funds are required. She then asked each country to stop competing on lowering the corporate tax rate and to introduce a minimum corporate tax rate to be applied globally.

The spread of infection is still in progress in many countries including Europe and Japan, whereas the recovery of global economy is becoming certain. The world requires larger funds and stronger regulations, but at the same time, it steps up the pace to achieve an exit strategy.

Such incoherence, the COVID-19-based concessions and the difference of national power will produce new types of inequality and divided societies. Whether willing or not, the division of the world will be incorporated in the structure of conflict between major countries. This will be the biggest risk in the post-COVID-19 world.


This Week’s Focus, April 9, 2021

Takashi Mizukoshi, the President