The IMF in its World Economic Outlook report issued late last month said the global economy would expand 6 percent this year, unchanged from its April forecast.
However, unlike in its previous report, the IMF in its latest forecast revised downward its growth prediction for emerging markets and developing economies, especially those in Asia, versus an upward revision for advanced economies.
The new forecast reflects the COVID-19 pandemic’s effects in various economies, along with changes in government policy, the IMF said.
According to the latest forecast, advanced economies are likely to grow 5.6 percent this year, more than the 5.1 percent the IMF estimated in April.
In particular, the IMF predicted 7 percent growth for the US, a marked recovery from last year’s 3.5 percent decline and an upgrade from the 6.4 percent growth it forecast in April.
Meanwhile, emerging markets and developing countries are expected to grow 6.3 percent this year, down from the previous estimate of a 6.7 percent increase.
There is a widening gap between advanced economies and many emerging markets and developing economies regarding COVID-19 vaccination rates and the ability to return to normalcy, IMF chief economist Gita Gopinath said in a blog post on Sunday last week.
More than 18 months after COVID-19 emerged, the global economy has staged a steady recovery. While the situation is uncertain given the unknown nature of the virus, the global economy has gradually improved since the second half of last year as the effects of the pandemic weakened. Most economies are on the path to recovery, albeit at different paces.
The question is why the global economy was affected only briefly by the pandemic, compared with wars or natural disasters. Bank of England Governor Andrew Bailey gave his reasons in a speech on July 2: First, COVID-19 itself has not destroyed economic capacity over the long term in the same way a war does. Second, the economic impact of the virus has been attenuated with each successive wave due to humans’ adaptability. Last, governments’ monetary and fiscal policies have significantly limited the pandemic’s long-term financial damage.
Indeed, there is stronger momentum in economic activity in many parts of the world, including in Taiwan, where local COVID-19 infections surged in May.
What deserves analysis is a question that Bailey raised: What sort of economy will exist after the fast bounce-back from COVID-19?
In Taiwan’s case, the economy in the April-to-June quarter expanded 7.47 percent from a year earlier, 0.54 percentage points faster than the Directorate-General of Budget, Accounting and Statistics’ forecast in June. This helped the economy expand 8.19 percent year-on-year in the first half of this year.
Will the nation return to the pre-pandemic pattern of low economic growth and low interest rates after the shock? Will the economy face structural challenges from an aging population and low productivity growth, as well as other underlying economic fundamentals that existed before COVID-19?
It is too soon to tell whether Taiwan’s rapid economic growth from last year to this year will be transitory, or if the growth momentum will persist and expand further. Nonetheless, more domestic investment is always welcome and the government must ensure a sufficient supply of land, water, electricity and workers.
The government has used decisive policies to respond to an unprecedented public health crisis over the past 18 months. As the COVID-19 situation in Taiwan eases, it must carefully address domestic consumption in an effective and timely manner.
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