Yahoo Finance’s Julie Hyman, Brian Sozzi, Myles Udland, and Brian Cheung discuss 2021 economic outlook with IMF Chief Economist Gita Gopinath.

Video Transcript

JULIE HYMAN: Gita, thank you so much for being here. As we look at the so-called k-shaped recovery coming out of this, something I'm interested to see is the trajectory of vaccine deployment in the developed versus developing world. Because it seems as though early reports indicate that the developing world is not going to get it as quickly. Is that just going to make the k-shaped recovery worse? And then what are the longer term knock-on effects from that?

GITA GOPINATH: Indeed, it is a major concern. What we are seeing in terms of access to vaccines, in terms of advanced purchase commitments, you know, it's coming to advanced economies quicker than it's coming to emerging markets as a whole. And of course, some emerging markets do have access to the vaccines sooner than others do. But in terms of the timeline as of now, the expectation is that most advanced economies will, somewhere in the summer of this year, get to a widespread coverage. But if you're looking at emerging and developing countries, especially low-income countries as a whole, we're looking well into 2022.

And the COVAX facility that was supposed to be providing these kinds of vaccines to low-income countries is still underfunded. And so this is a major challenge, which again, as we're seeing around the world, there are new variants of the virus coming up. And so if we don't control the virus in any part of the world, I think every part of the world is susceptible to this pandemic for much longer. So it's not just the k-shape, but it's important for the advanced economies themselves to ensure that there's widespread availability of the vaccine.

BRIAN CHEUNG: Gita, it's Brian Cheung here. It's great to speak with you again. Now I just want to ask about whether or not that changes the baseline projection from the International Monetary Fund? The last projection that you had back in October had 5.2% global GDP in 2021 specifically, 3.1% here in the US. That was actually a slight revisions down from the earlier update that you had in June.

I understand the IMF is cooking the next round of updates on that. But again, there's that new strain, that B117 in the UK, but then you also have the vaccine development. So do you expect to upgrade or downgrade those revisions in the next update that we should expect in the coming weeks?

GITA GOPINATH: So, yes. We are putting out our next update on January 26, so very soon. There are a couple of things going into it, Brian. Firstly, in 2020, the quarter 3 GDP numbers, I think uniformly, actually came in stronger than we had expected. So that pushes the global economy as a whole to a better starting point in 2021.

Now, the end of 2020, and what we're seeing right now, of course, is a pretty dark winter. So that's having-- it's not-- it's not globally the case. But you're certainly seeing that in Europe. I mean, the UK is being hit very hard. You have lockdowns being announced. And that, we know, has a direct effect on these measures of activity.

So it's-- right now, the way I see it in the near term, is the race between the virus and the vaccines. But given what we saw in 2020, that when you had re-openings, you had a pretty strong come back, plus the stimulus that's in the system, including what was announced with the US and Japan towards the end of the year, that combination should power a recovery in the second half. So in terms of the overall direction of the economy again, based on the 2020 to better than expected numbers, we should see an upgrade in some parts of the world.

BRIAN CHEUNG: So then what is the policy prescription for monetary policy makers, the central banks of the world? I mean, arguably they were very important in making sure there wasn't a financial crisis that emerged from all of this, at least in 2020. But for 2021, at least here in the United States, the story is about quantitative easing for the Fed. Should they taper or increase their asset purchases? People are wondering what is that going to do with regard to the trajectory of the virus, which is still primarily an epidemiological phenomenon? So what is the recommendation for global central banks as we begin 2021 as to how to engineer that recovery?

GITA GOPINATH: I mean, given the high level of uncertainty at this point and the fact that we still don't-- we still have the pandemic, and we have these new virus mutations, given all of that, of course, central banks should take a pretty cautious approach to withdrawing any kind of support measures. In addition, the vast majority of advanced economies have their inflation below target. And especially, if you look at, for instance, the euro area, and if you look at what's happening terms of inflation expectations, the risk of that drifting away further from their target is quite serious.

So my-- you know, the strategy should be one of a cautious approach. We're still in the midst of this pandemic. And as things recover, of course, one reassesses. But given what we're seeing in terms of inflation levels around the world in terms of inflation expectations, I would expect it to be a pretty gradual process of-- of any kind of-- you know, in terms of policy moves.

MYLES UDLAND: Gita, it's Myles Udland, here. I wanted to ask more broadly maybe about what the IMF and the broader economics community may have learned out of this crisis-- that we've seen the US economy do quite well with a huge amount of fiscal stimulus given directly to consumers and households? Is this may be going to reframe some of how you know, you guys at the IMF and again, kind of broader economic community thinks about how you crisis fight, how you help economies through this, and maybe reshape some of our ideas around how to use policy in future downturns?

GITA GOPINATH: Well I think an important lesson learned from the global financial crisis was the importance of continuing fiscal support and not withdrawing it prematurely, which is what happened right after the GFC. So I think both of that lessons were learned, and thankfully, we got the right kind of stimulus that was needed as soon as the crisis hit. And it's important for countries not to prematurely withdraw. That I think that's a lesson that's been learned.

Indeed, a second lesson that's been learned is that countries are able to provide income support directly and quickly. So having a strong social safety net helps. And countries should put that in place to prepare for the future. And so these are important measures they want us to take. And again, the recognition that we are in times when interest rates are low-- historic lows-- and expected to be low for quite some time, which gives fiscal authorities space to use their toolbox.

And so all of this tells you that given the nature of this crisis, fiscal is absolutely essential. And the stimulus has been quite considerable. I mean, one of the reasons why one should expect to see a fairly good recovery in many parts of the world in the second half of 2021, if all goes well in terms of the virus, is the substantial support that's been provided.

But I just want to point out that this tremendous variation, advanced economies did about 20% of their GDP in terms of fiscal support. Emerging markets that number is 6%. And when you get to low-income countries, it's 2%. So there is that variation that unfortunately, is also part of this k-shaped recovery.

BRIAN SOZZI: Gita, given that significant stimulus you just mentioned, and the fact that really, cheap money from the Fed will be around for some time, and we could see that strong recovery fueled by the vaccine later this year and into 2022, in the US, do you think that will sow the seeds of an inflationary outbreak? And what would that look like?

GITA GOPINATH: So that's-- no, we don't think that's the case. [INAUDIBLE] it is possible that once there is a strong recovery taking hold, that there might be some short term supply issues that lead to some temporary spikes. But the question that's relevant to monetary policy is how durable this increase inflation, if it comes about, will be? And there, you know, if you look at what the impact of wage pressures, if you look at inflation expectations, both of which we know have been quite essential to the path of inflation, those remain in many countries, below target and/or close to target. So the expectation is not of a durable, very high levels of inflation.

Also, let's keep in mind that the shift in monetary policy in the US has also been precisely to avoid a situation of too low inflation. And so I'm sure central banks would actually welcome some bit of inflation that's coming up, even maybe above their target. So to prevent the worst scenario, where you actually end up with inflation being too low and being stuck at the zero lower bound for very long.

BRIAN CHEUNG: And Gita, the last question here. It seems like we kind of forgot about it, that's everything that's been in 2020, but trade was a major story at the beginning of last year, before this whole COVID pandemic really began gripping the world. What do you think the story is going to be between the United States and China, in addition to other kind of global relationships with regards to trade in 2021? Does that present headwinds or tailwinds to economic growth?

GITA GOPINATH: So just in terms of the facts on global trade, what we've seen is, again, 2020 we saw a rebound as a partial rebound, but again, that's stronger than what we had seen right after the GFC. So some of the concern that there would be a major breakdown in global supply chains, at least as of now, that's not there in the data. But in terms of services trade of goods, we are way off. In the tourism and travel is-- is still highly subdued.

And what happens next in terms of policies? I think this is something, of course, has been an issue. It was an issue-- a major issue before the crisis. It's not going away. There are still-- there's still a need to reform the WTO.

There's still a need for countries to work together to address the grievances that exist in the trading system. So I suspect those frictions will still be there. But my hope is that maybe there will be a resolution sometime in this year or next year, at least some way moving towards a resolution.