Cautious Optimism on Recovery: A Peek at the “Global Economic Outlook” from the IMF

J. Soedradjad Djiwandono Emeritus Professor of Economics, Faculty of Economics and Business, University of Indonesia

IO – I have not been writing anything for quite some time, either in this news journal or any others. Aside from my concern regarding my own understanding of what has been developing with the pandemic, economics, and politics, I also hoped to be able to have fewer gloomy issues and pictures to write about.

A consolation is that the International Monetary Fund (IMF) has just come out with an update of its World Economic Outlook, 2021, published along with its April 5 11 meetings. There was another update before this one, issued in January 2021, reporting on the one published during the annual meetings, from September 28-October 9, 2020. All sessions have been held virtually, and hosted by IMF management at their Washington, DC Headquarters.

Allow me to open this exposition by quoting Dr Gita Gopinath, Chief Economist of the IMF, in the launching of the report that said, “Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible.” The statistics confirm this statement, even if in numbers or percentages they only seem marginal. And these are not without warnings on daunting challenges.

The improvements reported in the last version of the WEO 2021, stood in comparison with both positions of October 2020, and the update of January 2021. I would just look at the comparison between the January and April figures which in general show improvements, and this is enough to voice optimism.

At the outset it should be understood – it is not something that should encourage anyone to celebrate or thinking about relaxing and return to business as usual by any means. The April update followed the positive notes above with caveats, even warnings for deciding too soon in reversing the extra efforts that have been resulting in the positive note of optimism. In the fight against an ongoing Covid-19 pandemic, relaxing established public health protocol is not warranted. Likewise, this is not yet a green light for reversing economic stimulus and its unconventional financing, as in the case of fiscal-monetary burden sharing.

The qualification of optimism is with respect to the unequal impacts of the Covid-19 pandemic and the measures addressing the pandemic. Both have been mostly unequally distributed, to more of a disadvantage for the poor, women, and the marginalised in society or country, and to the developing and least-developed regions globally. IMF Chief Economist Gopinath wrote to explain this in “Managing Diverging Recovery” (IMF Blog, April 6, 2021). Consider a recovery that some characterize as “K-shaped”, rather than “V-shaped”.

The Improvements

From the Foreword of the Report, as well as the statement by the Chief Economist during the launching of the update and her writing in the IMF Blog on the matter, the message is crystal clear that she welcomes the improvements of the estimates of some of the important macro indicators detailed in the report. The percentages of GDP decline in the April Report were small, yet welcomed. These were -4.4 in October 2020, -3.5 in January 2021, and -3.3. Small but enough to give an encouraging sign that progress has been achieved.

And the reverse is true with respect to the real growth estimated in 2021, picking up from 5.2, 5.5, and 6.0, respectively for the same October 2020, January 2021, and April 2021 periods. Thus, the revised projection for next year of world economic growth, respectively, in the last two updates from January to April 2021, of 4.2 to 4.4 percent.

The driving force of the improvements was progress in the health sector, in the battle against the pandemic, which in turn pushed the economy to move forward. It has been traceable from the progress of the efforts in addressing the pandemic from the now well-known health measures: social distancing, hand-washing and wearing masks, to testing and tracing, to the invention, development, production, distribution of vaccines, and the actual vaccination of populations globally. These have been supporting the program of resumption of workers to go back to work and ultimately the push of growth upward or negative growth down.

Dr Gopinath explained that the upgrades in global growth for 2021 and 2022 are mainly the result of revised figures for advanced economies, particularly for a sizeable rise for the United States (by 1.3 percentage points), expected to grow at 6.4 percent this year. EU economies also registered signs of recovery, albeit more faintly. Meanwhile, the People’s Republic of China is not just leading the GDP growth of emerging economies at 8.4 percent, it is the only economy that managed to return to a pre-pandemic GDP level this year, while other emerging economies are only projected to do so in 2023.

I feel confident in bolstering this optimism, when few days after the launching of the Report, the issues were discussed more openly on a CNBC television program entitled “Debates of the Global Economic Outlook.” The program featured heavyweight authorities in monetary fields, along with finance and trade: IMF MD Giorgieva, WTO DG Okonjo-Iweala, Fed Chair Powell and Eurogroup Finance President Paschal Donohoe. Last was an informal forum of EU Finance Ministers.

I think it is really refreshing to watch them seemingly in unison, supporting the idea that the major objective of policies they are pursuing and monitoring lately is in fact something outside their own jurisdiction, i.e., addressing the pandemic. Here, even only marginal results have been positive. They acknowledged that this still could slip back. However, for sure it provides a good base for further measures to solidify and move forward for recovery and further progress. In addition, let us hope that the positions of the US and the PRC in leading the economic recovery will exert a more positive impact in reducing the tension of an unhealthy combative relationship, moving toward more productive cooperation.

Challenges remain.

These positive notes should not encourage authorities to sit back contented and relax. The good news was immediately followed with caveats, reminding all that there are challenges that must be seriously monitored and addressed, or we all will lose more, including what we have achieved so far.

The Fund started with the way the world addresses the pandemic first to economics-finance. “Future developments will depend on the path of the health crisis, including whether the new COVID-19 strains prove susceptible to vaccines or instead will prolong the pandemic; the effectiveness of policy actions to limit persistent economic damage (scarring); the evolution of financial conditions and commodity prices; and the adjustment capacity of the economy.” That is a quote from the updated Report.

This is the crucial part: the updates said that due to those challenges policymakers should prioritize policies that will follow a path of prudence, regardless of the state of the world that prevails. These could mean something different for different economies with different systems of governance and circumstances.


What I am trying to share here is my appreciation of those in their respective and respectable positions who are doing their jobs professionally and consistently, knowing well the risks in making daring decisions that would easily inviting criticisms, including from those that may be unfair or not well thought out. Prof Larry Summers, a Treasury Secretary under President Clinton and former Harvard University President, wrote a column in The Washington Post that criticized President Biden’s US$ 1.9 trillion fiscal stimulus prior to an even bigger infrastructure bill, as risking the US economic stability as never known before. It was not clear if he was referring to uncontrollable inflation. The column raised many questions that he felt the need to answer in another column, published afterward.

As someone familiar with the past group of authorities during the Asian Financial Crisis of 1997/98, one that included Treasury Secretary Summers, I dare say that the current group is the right group at the right time. Not just those in the IMF management, but those who came out more openly in the CNBC program I alluded to above, in which I would include the US Treasury Secretary Janet Yellen. She, together with Jerome Powell, her successor as Fed Chair, showed their commitment and steady hands as the guardians of US monetary and economic stability, that in turn will prove important for other economies.

And for us here in Indonesia and the region that are parts of the qualification to the positive notes – as emerging economies outside China – meaning we have not been doing well, surely we should be more disciplined, staying steadfast in what we have done right and acknowledging the wrong or weakness, to benefit from the tipping point to moving forward.

I have been commenting on the use of quantitative easing in monetary policy in the synchronised policy of financing the fiscal stimulus in respond to the Covid-19 pandemic. But now, we better keep vigilant, acknowledging the still-narrow fiscal space. And with the new fiscal stimulus of President Biden that looks probable to be implemented, even if not exactly as introduced originally, the implications for emerging economies should not be overlooked. And here Indonesia may face challenges of still limited fiscal space and possible narrowing monetary space to redeploy the use of quantitative easing.