The economy is tipped to stage a major comeback this year after contracting sharply in 2020, with COVID-19 expected to leave fewer scars than the GFC.
The global economy is forecast to bounce back in a major way this year thanks to government stimulus measures and an expected vaccine-powered recovery, but the efficacy of the jabs as new mutant strains emerge will be critical.
That’s the view of the International Monetary Fund, which released its latest outlook on Tuesday night, saying it estimated the world economy contracted by 3.3 per cent in 2020 as the COVID-19 pandemic took its toll.
The figure is better than the IMF projected in October and January, reflecting higher-than-expected growth in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working.
This year, the IMF is projecting the global economy will grow at 6 per cent, moderating to 4.4 per cent in 2022, which is again stronger than it previously thought, reflecting additional fiscal support in a few large economies and the impact of the vaccine rollout.
The outlook for Australia is 4.5 per cent growth next year, followed by 2.8 per cent growth in 2022.
The report showed advanced economies contracted by 4.7 per cent in 2020, but by only 2.4 per cent in Australia, while the US economy shrank by 3.5 per cent.
The Euro area was hit particularly hard, with Spain’s economy contracting by a huge 11 per cent.
Treasurer Josh Frydenberg seized on the new figures as proof Australia was performing “remarkably well”.
“Having outperformed all major advanced economies on the economic front in the past 12 months, there is no other country you would rather be in than Australia,” he said.
The IMF said last year’s contraction was “unprecedented in living memory in its speed and synchronised nature … but it could have been a lot worse”.
“Although difficult to pin down precisely, IMF staff estimates suggest that the contraction could have been three times as large if not for extraordinary policy support.”
CommSec economist Craig James noted last year’s contraction was the biggest since 1946, while the growth tipped by the IMF for 2021, if attained, would be the fastest in 47 years.
“Governments and central banks responded quickly to the pandemic, and just as importantly, vaccines were able to be developed within a year of the outbreak occurring,” Mr James said.
“The speed and breadth of the vaccine rollout will fundamentally determine whether the global economy rebounds by 6 per cent as expected.”
The IMF said economic recoveries under way around the world were happening at “multi-speed” rates, linked to stark differences in the pace of the vaccine rollout, the extent of economic policy support and structural factors such as reliance on tourism.
“Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis,” the IMF said.
“However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses.”
In 2009 after the GFC, hard-hit advanced economies contracted by 3.4 per cent.
That was a steep plunge from the commodities-driven boom years of 2006 and 2007 when world economic growth was more than 5 per cent.
Axi chief global market strategist Stephen Innes said a bullish cocktail of fiscal stimulus – including US President Joe Biden’s $US1.9 trillion once-in-a-generation spending splurge – and pent-up consumer spending would propel economic growth powerfully.