WASHINGTON– New, highly infectious COVID-19 variants could inflict double blow on emerging markets in a downside scenario, leading to significant losses in output over the coming years, an International Monetary Fund (IMF) official has said.

“I wish we could be talking about upside risks … Unfortunately, it’s not where we are,” Petya Koeva Brooks, deputy director of the IMF’s Research Department, told Xinhua in a remote video interview earlier this week. 

In the latest update to its World Economic Outlook (WEO) released Tuesday, the IMF maintained its global economic growth forecast at 6 percent for 2021, highlighting widening gaps in global recovery and warning of downside risks amid vaccine inequality. 

The projection showed that growth prospects for advanced economies this year have improved by 0.5 percentage point to reach 5.6 percent, while those for emerging market and developing economies are downgraded by 0.4 percentage point to 6.3 percent. 

“The access to vaccines and the ability of countries to provide policy support are the main reasons why we’re seeing this divide,” Brooks said. “Unless we solve that problem, I think it would be hard to talk about durable global recovery going forward.”

Close to 40 percent of the population in advanced economies have been fully vaccinated, compared with 11 percent in emerging market economies, and a tiny fraction in low-income developing countries, according to the IMF. 

On the global vaccination front, Brooks said there is “a mixture of good news and bad news,” stressing that a lot more work needs to be done to solve the problem.

IMF staff recently outlined a $50-billion plan, which has been endorsed by the World Health Organization (WHO), World Bank, and World Trade Organization, and aims for faster vaccine rollout and accelerated recovery.

Brooks noted that additional funding has been provided to fully fund COVAX, a WHO-backed international platform which donates vaccines to countries in need, and there have been some positive developments on lifting export restrictions so that vaccines can be produced.

Despite the progress, more efforts are needed in some other aspects, said the IMF official. The multilateral lender has called on countries with surplus vaccines to provide at least 1 billion doses this year to countries with less access.

“And we’ve seen some pledges, but by and large, that is an area which still needs to be worked on,” Brooks said.

 “And perhaps the area where there’s been the least progress has been on ensuring that there is grant, there’s financing also for testing and therapeutics to be made available in low-income and emerging countries,” she added.

While more widespread vaccine access could improve the outlook, risks on balance are tilted to the downside, according to the IMF, which estimated that the emergence of highly infectious virus variants could derail the recovery and wipe out $4.5 trillion cumulatively from global gross domestic product (GDP) by 2025.

 In one downside scenario, new variants are assumed to lead to a new infection wave in emerging market and developing economies in the coming months, with tightening financial conditions amid concerns over inflation in advanced economies, particular the United States.

“As a result of that, emerging markets are dealt this double blow, and in that scenario, they could see significant losses in output over the coming years,” Brooks told Xinhua.

According to IMF estimation, in this scenario, emerging market and developing economies would bear the brunt of the impact with a loss of roughly 3.5 trillion dollars. 

In another downside scenario, it is assumed that new, more infectious variants pose risks not just to those countries with low vaccination rates, but also to many advanced economies where vaccine hesitancy has already or could, moving forward, slow the pace of vaccinations. 

In the second scenario, the distribution of losses is different – advanced economies account for a larger share, with a cumulative loss of more than $2.5 trillion.

“Again, this message about the importance of vaccination everywhere,” Brooks said. “Until the pandemic is over everywhere, it’s just gonna be incurring this damage on the global economy, something that we are quite worried about.”

Noting that the IMF baseline shows inflationary pressures are transitory, Brooks, however, said “if we were to see some of those factors not panning out,” in a unique situation, “especially if we were to see a de-anchoring of inflation expectations, that would be a serious problem.

The IMF official said the important thing to keep in mind is that this is really what central bank credibility is all about, stressing that what central banks say and do “really matters,” as they affect inflation expectations.

 “We do think that central banks do have the tools to make sure that this is not going to happen,” Brooks said. “And that’s why we also recommend acting when there are signs that we are going into that type of situation.”

According to the WEO update, global trade volumes are projected to expand 9.7 percent in 2021, up by 1.3 percentage points from April projection. This follows an 8.3-percent contraction in 2020. 

“We have been positively surprised just in terms of what we’ve seen in the months of the year up to now … but by and large, I think this is an area where we could all do better,” Brooks said.

“The last thing that one needs at this stage of the recovery is trade tensions and anything related to that,” she added. – Xinhua