Covid vaccine rollout is going well, so why has IMF downgraded UK economic prospects for 2021?

The UK's prospects have been downgraded. Credit: PA

The International Monetary Fund (IMF) has just published its latest assessment of the health of the world economy.The collapse in output and the poor performance of the UK in 2020, relative to other advanced economies, is well known.The UK government locked down later than elsewhere and restrictions were tighter and lasted for longer as a result. Household spending in the UK is also more skewed towards social consumption - in cinemas, restaurants and pubs - and was therefore disproportionately hit. 

The data shows that the UK fared worse in 2020 than Italy, France (which experienced falls in output of 9% vs 10% in the UK) and materially worse than Germany (where output fell by 5.4%). 

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Germany did a better job of getting on top of Covid outbreaks, its economy is also geared towards manufacturing which hasn’t experienced the same of disruption. In Spain output fell by 11.1%.But then we knew all this stuff. What is curious is that the IMF appears to think that in 2021 the UK will continue to underperform relative to some of its peers. The rollout of vaccines have raised the hope that 2021 will be a year of economic recovery. The UK is doing a very good job at delivering jabs; the latest data shows that 10 doses have been administered for every 100 in the UK. The proportion of people who have been vaccinated in Germany (2.1), France (1.6) and Italy (2.3) is far lower.

List of vaccinations carried out by country per 100 people.

And yet, in the eyes of the IMF, the speedy rollout of the vaccine hasn’t greatly improved our economic prospects for the year head.The UK economy is forecast to grow by 4.5% in 2021 - that’s a downgrade on the IMF’s previous assessment. It isn’t until 2022 that the UK’s bounce back starts to look more vigorous.The IMF doesn’t explain its thinking. It would be interesting to know to what degree the benefits of the fast vaccine rollout have been offset by the emergence of the new strain of the virus.It would also be interesting to know what assumptions the IMF has made about the impact of Brexit. The IMF notes that a “no-deal Brexit” was a “key downside risk” that has disappeared but to what degree does it think the new trade deal will hit growth?

IMF blames Covid and Brexit for UK downgrade

A glance at the list of projections shows that China is the odd-economy-out. The country where the coronavirus outbreak began is also the only major economy not to have contracted in 2020. Once again, we knew this. China is an authoritarian state which has a low regard for individual liberty. It demands and largely gets complete obedience form its citizens. This has clearly proved rather handy in man helped it manage to outbreak. What is striking though is that the United States, a country which has had many of the same problems with infection rates that we did, seems to have fared so much better than we have. Again, it’s not clear why.