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IMF cuts Japan's 2021 growth forecast to 2.4% on latest COVID wave

People wearing protective masks walk across the famed Shibuya scramble crossing on Oct. 12, 2021, in Tokyo. (AP Photo/Kiichiro Sato)

WASHINGTON (Kyodo) -- The International Monetary Fund on Tuesday forecast Japan's economic growth to be 2.4 percent in 2021 from a year before, down 0.4 percentage point from its July estimate as the most recent wave of coronavirus infections further curtailed business activities in the world's third largest economy.

    Global growth projection for 2021 was trimmed 0.1 point to 5.9 percent, reflecting forecast downgrades for advanced economies, partly due to longer-than-expected supply disruptions stemming from the coronavirus pandemic, and also for low-income developing countries struggling with the slow rollout of COVID-19 vaccines.

    "The global recovery continues but the momentum has weakened, hobbled by the pandemic," IMF chief economist Gita Gopinath said in the latest World Economic Outlook report, while warning of the increasing divergence in economic prospects across countries on the back of large disparities in vaccine access and in policy support.

    Output in the advanced economy group is projected to return to the pre-pandemic growth path by 2022 and rise slightly above it thereafter, helped by an anticipated additional U.S. fiscal stimulus package, but other income groups will not be able to return to such levels for many more years, according to the IMF.

    Policy choices have become more difficult due to subdued employment growth and rising inflation in countries including the United States, with demand accelerating on the back of eased virus restrictions but supply slow to respond, the IMF said. Food prices are also going up, delivering a blow to low-income countries.

    The Washington-based institution kept unchanged its projection of world output in 2022 at 4.9 percent.

    As for Japan, the IMF attributed the downward revision for 2021 to the impact of the latest COVID-19 state of emergency from July to September that affected the country's capital and elsewhere.

    The growth outlook for the following year, however, was upgraded by 0.2 point to 3.2 percent.

    The United States, which has been a driving force of the global economic recovery along with China, is expected to see a 1.0 point lower growth at 6.0 percent in 2021, amid supply disruptions and softening consumption in the July-September quarter.

    Growth projection for China, the world's second-largest economy, is estimated at 8.0 percent for 2021 and 5.6 percent for 2022, both a 0.1 point downgrade from the July estimate, the IMF said, citing the impact of a stronger-than-expected scaling back of public investment.

    The outlook for the euro area in 2021 was raised 0.4 point to a 5.0 percent growth and was kept at 4.3 percent growth for the following year.

    World trade volumes will also remain unchanged from the previous forecast at an increase of 9.7 percent for 2021. But the figure for the following year was downgraded 0.3 point to a 6.7 percent rise.

    With concerns remaining over the possibility of an emergence of more aggressive coronavirus variants after the Delta variant led to a resurgence of infections, the IMF said speeding up the vaccination of the world population remains "the top policy priority."

    While over 60 percent of the population in advanced economies is fully vaccinated and some are now receiving booster shots for additional protections, about 96 percent of the population in low-income countries remains unvaccinated, Gopinath said.

    She also called for avoiding "unnecessary policy accidents that roil financial markets and set back the global recovery," touching on concerns over U.S. Congress failure to promptly raise the nation's debt limit, which would cause the government to default, and disorderly debt restructurings in China's property sector.

    If the pandemic were to have a prolonged impact into the medium term, it could reduce global gross domestic product by a cumulative $5.3 trillion over the next five years relative to the IMF's current projection, she warned.

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