The International Monetary Fund has upgraded its global economic growth forecast for this year, but admits that exceptional uncertainty remains.
The IMF now expects the world economy to grow by 5.5 per cent in 2021, up 0.3 per cent from its previous prediction in October.
It has kept its growth forecast for 2022 at 4.2 per cent.
This follows a global contraction of 3.5 per cent in 2020 as a result of the coronavirus pandemic.
The IMF says the upgrade reflects expectations of a coronavirus vaccine strengthening economic activity later this year, coupled with additional policy support in a few large economies.
“Although recent vaccine approvals have raised hopes of a turnaround in the pandemic later this year, renewed waves and new variants of the virus pose concerns for the outlook,” it says.
“The strength of the recovery is projected to vary significantly across countries, depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spill overs and structural characteristics entering the crisis.”
Australia was one of several economies to experience surprisingly strong economic growth in the September quarter.
However, the IMF did not provide a new forecast for the Australian outlook.
In October, the organisation forecast the Australian economy to expand by three per cent in 2021.
The Washington-based body says policy decisions by counties should ensure effective support until their economic recoveries are firmly underway.
As well as lifting output, policies should ensure growth benefits all, while accelerating the transition to lower carbon dependence.
But the IMF warns growth could turn out weaker than predicted if new variants of coronavirus emerge and prove difficult to contain, or if infections and deaths mount rapidly before vaccines are widely available.
“Slower than anticipated progress on medical interventions could dampen hopes of a relatively quick exit from the pandemic and weaken confidence,” the IMF said.
However, favourable news on vaccine manufacturing, distribution and effectiveness could increase expectations of a faster end to the pandemic than assumed, boosting confidence.
“This would generate stronger consumption, investment and employment recoveries, with firms hiring and expanding capacity in anticipation of rising demand,” the IMF said.