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IMF’s Gita Gopinath on vaccine rollout: Quick distribution will lead to stronger economic recovery

The International Monetary Fund (IMF) on Tuesday raised its projections for global growth, due in large part to the fund’s expectation to see “low levels” of COVID-19 across the world by the end of 2022. Gita Gopinath, IMF Chief Economist joins Yahoo Finance Live to discuss.

Video Transcript


BRIAN CHEUNG: The International Monetary Fund released its updated forecasts for 2021 growth just this morning. And in their World Economic Outlook report that was released this morning, they did offer a more optimistic view of where the global economy and the US economy is going to go in 2021. They have a projection for 5.1% GDP growth in the United States and 5.5% growth globally. And joining us now to talk a little bit more about that report is IMF Chief Economist Gita Gopinath.

So Gita, I just want to kind of begin this conversation with what were the broader reasons, from the IMF standpoint, in that more optimistic outlook for the globe in addition to the United States?

GITA GOPINATH: Hi, Brian. In terms of the upgrade that we have for 2021, it's 0.3% percentage point upgrade relative to our October forecast. So what changed is that between October and now, we, of course, had multiple vaccines succeed. And we have several countries rolling out vaccination plans. In addition-- and this is important-- is we had additional fiscal support provided at the end of 2020 for some major economies, like the US and Japan.

So those are the positive effects that led to the upgrade, but it would have been higher if not for the fact that we took some off because, in the first quarter of this year, we have several economies putting containment measures in place to hold back the spread of the virus. And that's having a negative effect on the numbers. But again, I just want to emphasize, there remains tremendous uncertainty.

BRIAN CHEUNG: Right, well, let's talk a little bit more about that uncertainty. I mean, the IMF report highlighted a number of downside risks. One of them could be the slower vaccine rollout, as we've seen kind of distributional challenges, in addition to the new strains that we're seeing in the United Kingdom and South Africa. How have those kind of impacted your forecasts? And when we see an update in April, does that mean we should expect a possibility of even a downgrade in three months or so?

GITA GOPINATH: I mean, given the uncertainty surrounding the dynamics of this pandemic, I think many things are possible. If it indeed is the case that the new strains of the virus reduce the effectiveness of vaccines enough that the recovery takes much longer, then we could have a negative downgrade. I mean, there are downside risks for many countries, including in Europe. And so, indeed, that could still be very, very possible.

BRIAN CHEUNG: Well, yeah, it's not all bad, though. And it seemed like, broadly, the upgrades that we saw in this report were quite noticeable-- two percentage points in the United States-- so talk a little bit about the upside risk here. I mean, the IMF report notes that they hope that we can get low levels of COVID everywhere by the end of 2022. What do you see on that front as obviously the Moderna, Pfizer, other types of vaccines kind of rolling out across the world?

GITA GOPINATH: I mean, so the assumption right now is that advanced economies and some emerging and developing economies, we get to kind of widespread inoculations and some form of immunity by the second half of this year and, for the rest of the world, into 2022.

Now, upsides would be that if the rollout gets accelerated more than what we're seeing right now in many of these countries and, indeed, the new mutant strains of the virus don't create a second and third and fourth wave of the pandemic in that world-- and again, I would add one more piece, which is that if you can hold out policy support until we get to that point-- then all of that can certainly lead to a stronger recovery, because unlike previous recessions, I mean, many households are entering this crisis, entering the post-recession period with higher savings rates. And that should bring back pent-up demand.

BRIAN CHEUNG: So on that point, fiscal policy is going to play a crucial role based off of those comments. We have a new Treasury Secretary who was just confirmed here in the United States with Janet Yellen-- again, former Fed Chair. If you could kind of craft what an ideal policy might look like here in the United States, what would that be when it comes to direct transfers, for example, or state and local support? What types of things would you advocate for?

GITA GOPINATH: I mean, firstly, I think it's absolutely terrific that Janet Yellen has been confirmed. I think that's great for the country and for the world. In terms of what needs to be done, we've been saying this, which is that we're still in the midst of the health crisis. There has to be spending for accelerated vaccine rollout. But that's not enough. I mean, also therapies, testing, all of that will have to be a part of the ammunition in fighting this pandemic, and much more needs to be done on that front.

There are struggling households and businesses that will need support until we get to the other end of the pandemic and in terms of providing support to the state and local governments to make sure that we don't have a negative drag that comes from them in 2021. I think all of these are important pieces of any kind of a support package.

BRIAN CHEUNG: And it looks like the report kind of outlines optimism that things can return to close to normal, at least in the advanced economies, by the second half of this year. From a macro picture, is there concern about a snap back in, let's say, consumption that could really push inflation higher? There's a lot of talk about that reflation trade when it comes to investor sentiment right now. But from a macro picture, do you really expect the picture on inflation to change once we're across that bridge?

GITA GOPINATH: So Brian, firstly, in terms of our projections, we still have the [INAUDIBLE] for advanced economies by the end of 2022. They're still about 2 and 1/2% below their pre-pandemic projected levels. So it's a smaller gap, but there is still a gap. And in that sense, we should just remember that there is still some scarring that could be going on. In terms of inflation, what-- we don't really see unhinging of inflation expectations in the advanced economies, which is an important thing if we have to worry about inflation getting out of hand on the upside.

So we don't see that. There is still labor market slack. If you look at labor force participation rates, they're lower. There are more part-time workers. So there's still more slack. And even for the US, I mean, we have unemployment rates coming down to like around 5%, 5 and 1/2% this year. But that's still above what it was pre-pandemic, which was just 3 and 1/2%. So there is stack. And with anchored inflation expectations, we are-- we don't expect to see a big surge in inflation on any kind of a durable basis.

BRIAN CHEUNG: Now, when it comes to the post-pandemic world, obviously, relief packages will continue to be a thing in many other types of countries for the foreseeable future. But people are already looking towards other types of policies when it comes to tax policy, trade policy, especially with a lot of leadership changing around the world. So when it comes to international coordination, does the IMF have recommendations on whether or not, for example, countries should be coming together to coordinate tax policy so there isn't kind of incongruity when it comes to trade barriers between countries? What's the IMF's recommendation on that front?

GITA GOPINATH: So, I mean, firstly, I think it's very good that the US has rejoined the WHO and, also, in terms of rejoining the Paris Climate Agreement. I think all of those are very positive steps. There is a lot more that needs to be done on the trade front. We know that trade has benefited many countries. But of course, the system is not perfect, and it will need reform. But we do believe that it is a rules-based multilateral trading system that will be the best for the world as a whole. And countries need to work towards that.

BRIAN CHEUNG: I think, Gita, we have to acknowledge, of course, that this type of recovery is not going to look the same in the United States as it will in emerging market countries, for example, low income countries. Is there a K-shaped recovery that you're seeing across the world when it comes to the ability of these countries to make the fiscal spending necessary to keep themselves whole? Do you really worry that even in the next 10 years, for example, there's going to be an even larger gap between the advanced economies and the low-income countries?

GITA GOPINATH: I mean, what we are seeing is a great risk of a reversal of whatever convergence we saw over the last decade of developing nations to advanced economies per capita income levels. But we've just seen the output losses relative to where they would have been in 2022 or 2025. It's just greater for many developing economies than it is for advanced economies. So indeed, we are extremely worried about this divergence and the setback that it will have to these countries in terms of attaining their sustainable development goals.

But you know, it doesn't have to be that way. I think the absolute first thing that's needed is to get vaccines, therapies, testing, anything that helps with ending this health crisis, more broadly available. And the international community has to work on that. And also, providing concessional financing and outright grants and outright debt restructuring, in some cases, to help them deal with this crisis.