The International Monetary Fund (IMF) estimates that without government support through the COVID-19 pandemic last year, the global economic downturn would have been three times as large.
A retroactive look from the IMF estimated that fiscal measures from governments around the world contributed about 6% to global growth in 2020, helping to soften a global shock that still contracted output by 3.3% in 2020. The IMF now says the COVID-19 recession is likely to leave a smaller scar on the global economy compared to the 2008 financial crisis.
"Overall, the global economy seems to be coming back somewhat stronger than we had expected," IMF Chief Economist Gita Gopinath told Yahoo Finance on Tuesday.
Still, the fund is recommending that countries with the ability to spend continue to support policy measures like unemployment insurance and stimulus checks through the economic reopening.
The IMF added that when policy support is pulled, it should be done slowly to avoid dramatic changes in wages for those still trying to return to work.
For now, the IMF continues to strike an optimistic tone about the path of the global economy. Pointing to the vaccine rollout and fiscal stimulus passed since its last round of forecasts in January, the IMF upgraded 2021 and 2022 growth expectations for most countries.
The fund now expects global GDP to expand by 6.0% in 2021, a markup from the 5.5% it had projected in January.
The IMF significantly marked up its forecast for U.S. growth, now projecting 6.4% growth in 2021 (compared to 5.1% in its January report). That figure would take GDP levels above where they were pre-COVID.
“Additional fiscal support in some economies, (especially the United States)—on top of an already unprecedented fiscal response last year and continued monetary accommodation—further uplift the economic outlook,” the IMF said.
The IMF also upgraded 2021 forecasts for a number of other advanced nations, including Canada (5.0% GDP growth expected), Italy (4.2%), and the United Kingdom (5.3%).
For China, which experienced COVID before the rest of the world, the IMF expects output to grow by 8.4% in 2021 (compared to 8.1% as projected in January).
An uneven recovery
The IMF cautioned that the economic outlook remains fraught with “high uncertainty,” warning that new virus variants could force downgrades. The fund also expressed concern about the disparate impact of the virus on low-income countries, which the IMF said were “hit harder and are expected to suffer more significant medium-term losses.”
The fund advocated for countries to contribute more support to the COVAX project, a global distribution effort designed to improve vaccine access among developing countries.
The IMF also reiterated its recommendation for allocating $650 billion in new Special Drawing Rights (SDR), a pool of reserves aimed in part at helping IMF-member countries struggling with the pandemic.
"Multiple instruments will be needed to prevent what I think is really a troubling feature: that after a couple of decades of income groups converging, we're actually beginning to see a divergence, at least for some time," Gopinath told Yahoo Finance.
U.S. Treasury Secretary Janet Yellen has advocated her support for the new allocation, despite some congressional concerns about other nations like Russia and China possibly benefitting from the SDRs.
“We do want to make sure that the SDR allocation goes to support relief and economic support in the lowest-income countries,” Yellen said Monday. “We’re working with other countries and the IMF to design a disclosure and reporting framework that would enable us to see how the SDRs that have been allocated have been used.”
Yellen and other finance ministers will be engaging in conversation this week as part of the IMF’s annual spring meetings.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.