Opinion: Recovery as much about vaccine sharing as inflation control, IMF’s chief economist says

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Gita Gopinath says the Bank of Canada’s strong track record on inflation has bought some wiggle room to manage the current fear. It may be required.

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“Central bankers have some very difficult decisions to make,” the chief economist of the International Monetary Fund said in an interview.

“If there is a real risk of de-anchoring inflation expectations to lose the credibility of your monetary policy framework, I think the argument to move pre-emptively, in that case, would be [and raise interest rates],” she said. “But for countries where we have credible central banks – and Canada is certainly one of them – you can take a more studied approach, a data-driven approach.”


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Ms Gopinath sat down for a one-on-one interview (via Zoom) shortly after unveiling the IMF’s latest twice-annual World Economic Outlook – which outlines growth expectations for 2021 due to the delta’s rise of COVID-19. There was a blow involved. Different and widespread global supply chain disruptions. The report devoted an entire chapter to inflation and what policymakers might need to do about it – a problem that was not fully appreciated by the IMF in the early stages of what could prove to be a difficult global recovery. Used to be.

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Ms. Gopinath acknowledged, “This is a very unique recovery – unlike anything we have ever seen before.”

On that front, the IMF praised the Bank of Canada for its early action last year to reduce government bond purchases under its quantitative easing program. The report cited policy action as an example of how central banks “should be prepared to act quickly if the recovery strengthens faster than expected.”

“Where there is a tangible risk of rising inflation expectations and more persistent price increases, early pre-emptive action will be required,” the IMF cautioned.

It is important for central bankers not to tighten monetary policy prematurely and “kill recovery,” Ms Gopinath elaborated. “But at the same time, it’s important to be very cautious about what’s happening with the inflation data – and so, to provide enough foreshadowing for how you’re going to act over these next several months. Any small change in policy can have a huge impact on the financial markets.

While inflation is now on the IMF’s radar, Ms Gopinath still expects global inflation to cool down to pre-pandemic norms “by the middle to the second half of next year”. And she quickly notes that this is far from being a global problem. It is an issue for some developing countries and a handful of advanced economies (USA, UK, Canada), but is largely a non-occurrence in Japan and the European Union.

The biggest concern on the IMF’s economic priority list, with global implications, is the uneven distribution of COVID-19 vaccines.

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High vaccination rates have been a key to strong economic rebounds in Canada and other advanced markets, but they continue to stifle recovery in a large number of developing and emerging countries. More than half of the world’s countries, which represent 35 percent of the global population, are on track to fall short of the IMF’s 40 percent vaccination target by the end of this year – a rate that’s nowhere near 72 percent. Percentage that Canada has already achieved.

“[Canada] It has done very well on vaccination rates, and is now also benefiting from the rebound in commodity prices that we have seen around the world. And [policy makers] Gave considerable policy support last year and during this year,” said Ms. Gopinath.

The IMF cut Canada’s growth forecast for 2021 to 5.7 per cent from 6.3 per cent, which, Ms Gopinath said, stemmed from supply chain disruptions that resulted in a “significant decline in real exports” in the second quarter. But the IMF raised its 2022 forecast for Canada to 4.9 percent from 4.5 percent, evidence that it expects growth from the current setback.

Now, she said, it is important for global recovery that Canada and other vaccine-rich countries step up their efforts to accelerate vaccine delivery in parts of the world where vaccination rates are low.

The IMF cited continued pandemic outbreaks as a major contributing factor to supply chain bottlenecks that are holding back recovery and rising fuel prices. It estimates that if the economic effects of COVID-19 are allowed to last over the “long” term, it could reduce global GDP by a cumulative $5.3-trillion over the next five years.

“What [vaccine] Surplus nations can, basically, step out of the queue, and maybe take a few steps back. Which basically has to be agreed with vaccine manufacturers to prioritize deliveries to COVAX and AVAT,” Ms Gopinath urged, referring to the World Health Organization and the African Union vaccine agencies respectively. “We’ve done the calculations – even if you decide to give your population a booster shot between the end of this year and the end of this year, substantial additional vaccine doses have been ordered by countries including Canada.”

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“Canada has pledged a vaccine donation of approximately 40 million to be distributed this year. So far 27 lakh doses have been delivered. … even with booster shots being provided, they certainly have the potential to provide the additional dose they had pledged. “

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