Despite successfully containing COVID-19 in 2020, some economies in the region, including Australia, faced setbacks from an initially slow vaccination rollout, the IMF says in its regional economic outlook.
But as vaccination rates accelerate, the IMF expects the region to grow by 5.7 per cent, a 0.4 percentage point upgrade from a forecast made in April.
The report says Australia is benefiting from a commodities boom, confirming it expects the economy to grow by 3.5 per cent in 2021 and by 4.1 per cent in 2022, before moderating to 2.6 per cent in 2023.
However, Dr Rhee again raised the IMF’s concerns of rising inflation posing uncertainties for the global recovery through higher commodity prices, supply chain bottlenecks and rising shipping costs.
“While we expect these supply chain inflationary pressures to be transitory, they could last longer, and feed more strongly into inflation expectations,” Dr Rhee said.
The outlook also faces downside risks from COVID-19 evolving from a pandemic to an endemic and lower vaccine efficacy against new variants.
Other risks include persistent global supply disruptions, elevated financial vulnerabilities in the corporate and real estate sectors in some countries, and potential spillovers from monetary policy tightening in the US.
“Given these challenges, the impetus for policies to support a sustained and equitable recovery are critical,” Dr Rhee said.
Australia’s number one trading partner, China, is forecast to grow by eight per cent in 2021, down from a previous forecast of 8.4 per cent, reflecting the spread of the Delta variant and significant fiscal policy tightening.