Global growth prospects rise despite risks

Tourists gather at the downtown area of Shanghai. [Photo by WANG GANG/FOR CHINA DAILY]

Projections for recovery are brightening, but uncertainties require preparations

Global economic organizations have issued brighter projections for 2021's recovery, led by the world's two largest economies, thanks to accelerated progress in COVID-19 vaccinations and large-scale stimulus. On Wednesday, however, economists said measures should also be prepared for uncertainties.

China is leading the economic recovery in the region encompassed by the Association of Southeast Asian Nations plus China, Japan and the Republic of Korea, or the "ASEAN+3", and its projected growth rate in 2021 was revised upward to 8.7 percent from 6.1 percent by a regional multilateral economic organization.

In the region as a whole, the GDP growth rate is expected to reach 6.7 percent this year, up from a projected 5 percent in the last report of the ASEAN+3 Macroeconomic Research Office.

Economies in the region, led by China, have proved to be resilient in the face of the COVID-19 pandemic. The success of China's containment measures in controlling the spread of the virus early on, and its ability to quickly scale up production meant that it was able to manufacture sufficient equipment for domestic needs and for export, according to a research report issued by the office on Wednesday.

Meanwhile, the global economy is on "firmer footing" and headed to a quicker recovery than originally expected. But it would grow even faster if China and the United States "work in sync", the head of the International Monetary Fund said on Tuesday.

The US and China are two engines powering a "multispeed recovery" from the pandemic crisis, and are among the few countries that will be "well ahead of their pre-crisis GDP levels by the end of 2021", IMF Managing Director Kristalina Georgieva said in an address ahead of the body's annual spring meeting, co-hosted by the IMF and the World Bank.

"The good news is that the global economy is on firmer footing. Millions of people are benefiting from vaccines that hold the promise of a normal life, of embracing friends and loved ones," Georgieva said.

When the IMF releases its quarterly update of its World Economic Outlook next week, it will show "a further acceleration" in global growth for this year, which was projected at 5.5 percent in the IMF's January forecast. There will be also an upward revision to its global forecast for 2022, she added.

The world's economy has regained growth momentum with the support of various stimulus measures, including job-saving policies and financial relief packages. But pressure still exists, especially in vulnerable emerging market, low-income and fragile states, economists said.

Uncertainties may increase as some major economies continually launch large-scale fiscal stimulus and monetary easing, adding financial risks and inflationary pressure, they said.

Faster US recovery could cause a rapid rise in interest rates, which could lead to a sharp tightening of financial conditions and significant capital outflows from emerging and developing economies, the IMF chief warned.

For China, "We are projecting strong growth this year at over 8 percent, and it is on the back of containing the pandemic and seeing the manufacturing sector recovering very quickly", Georgieva said in a conversation following the speech.

China and the US are driving the world forward, she said. "This is like two engines on a plane on which we fly. We need these two engines to work in sync, and we would go farther, and we would go faster" if they did.

At the first quarterly meeting of China's central bank monetary policy committee, which was held last week, members agreed that the economic recovery is still uneven despite the growth of driving forces for domestic economic development and the remarkable increase in positive factors.

The committee vowed that China's prudent monetary policy will be flexible and targeted, as the spread of COVID-19 outside China and the world economy see prospects for a turnaround. Yet the overall situation remains complicated and challenging.

"As governments become more experienced at handling infections, targeted measures that are decisive, effective and proactive will allow economies to minimize further loss of lives while enabling economic activity to continue," said Hoe Ee Khor, chief economist at the ASEAN+3 Macroeconomic Research Office.

The effects of China's fiscal policy in 2020 amounted to about 5 percent of GDP, and spending, while expansionary in 2021, should become less so, given the expected strong rebound in growth, he said.

US-China tension, if heightened and expanded from trade to technology, could raise concerns that global technology may become bifurcated, divided with adverse ramifications for the global economy, the economist said.