IMF Report Downgrades European Countries Economic Outlook Growth Projections

The latest IMF Report released to the press yesterday paints a grim European outlook. It mainly reveals the optimism surrounding the economic recovery in most parts of the world, after 2020 brought a worldwide recession.

Before looking at some details in the report, we should mention that data for 2020 is just an estimate. The final national data still needs to process in the period ahead. In any case,  all advanced economies witnessed sharp recession and, in some cases, outright contraction.

Spain leads by far. It is the one advanced economy that suffered the most, with a contraction of -11.1% of its economic output. The United Kingdom follows with a double-digit decline, but here we may add the effect of Brexit on top of the COVID-19 decline. Finally, United States output declined only by 3.4%, having great chances to recover the lost ground already in 2021.

What Updates Were Made in the IMF Report?

Most of the updates in the IMF global economic 2021 forecasts were to the upside – with some exceptions. For example, the IMF revised to the upside the forecast for the U.S. growth to 5.1% from the previous forecast made in October 2020 of 3.1%. If we consider the vaccination rate currently in place in the United States and the fact that over 7% of its population already received the COVID-19 vaccine, the prospects are that the forecast might be upgraded further later in the year as the economy reopens even more.

Also, the United States inoculates over one million people a day. Moreover, it has enough vaccines in the pipeline to keep this rate or even to improve it. As such, the bright outlook suggests stronger economic growth faster than initially thought.

Japan’s growth forecast was raised as well, from 2.3% to 3.1% last October. The exception in the advanced economies comes from the European Union.

The IMF lowers the economic growth forecast in the European area to 4.2% from 5.2%. Sure, we still talk about positive growth. However, one cannot escape the feeling that the divergence here comes from the latest developments in the vaccination rate.

By now, it became clear that vaccines are the way out of the pandemic. Yet, despite contracting the largest number of vaccines in the world (i.e., 1.6 billion vaccines), the European Union countries only managed to use 2% of them.

The IMF’s press release reveals how everyday matters. The lost ground in the vaccination rate matters in terms of lives lost, but also in terms of economic output. Italy, France, Germany, or Spain are not projected to recover the lost ground, not even by the end of 2022. In sharp contrast, the United States may do so this year.

Bullish Euro?