While the Global Economy Recovers from COVID-19, Global Inequality Worsens- April 2021

The international economy is recovering faster than many economists have projected, powered by growth in the U.S. and China and by the accelerating pace of vaccinations in many advanced economies. However, the pace of growth has been uneven, as many low- and middle- income nations with limited resources lag behind.

The IMF plans to raise its forecast for global growth for this year, from the 5.5% expansion projected in January. This would follow an estimated 3.5% contraction in 2020, the worse recession since the Great Depression (beating out even the GFC in 2009).

The current economic recovery is in large part a result of the roughly $16 trillion in fiscal stimulus and liquidity injections from governments and central banks, primarily in wealthy nations. The U.S. government under the Biden administration has pledged roughly $5 trillion in stimulus spending since the pandemic began.

Despite the good news, global inequality has worsened because of the pandemic. In emerging and developing countries, per-capita GDP has reduced by one-fifth – nearly twice the loss among advanced economies, the IMF estimates. In 2020 alone, more than 100 million people, mostly in South Asia, fell into extreme poverty, defined as living on less than $1.90 a day.

Economic fortunes are diverging and many individuals in less well-off nations continue to face job losses and rising poverty. As major economies focus on fighting the pandemic and repairing their own economies, foreign aid has also dropped off. Concerns are also emerging over the possible negative effects of the massive stimulus spend by the U.S. and other wealthy nations on the developing work. Stimulus could lead to rising inflation, and higher interest rates, thereby boosting the debt burden for developing economies. This is a particularly serious issue, with the external debts of low-income countries doubling between 2010 and 2019 to more than $750 billion, according to the Institute of International Finance.