Washington, Feb. 22, 2021 (Lusa) - The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, warned on Monday that a 'Great Divergence' could develop in 2021, after the 'Great Confinement' of 2020, including in the European Union (EU).

In a speech as part of the European Parliamentary Week, co-organised by the European Parliament and the Portuguese Parliament as part of the parliamentary dimension of the Portuguese presidency of the Council of the European Union, Kristalina Georgieva admitted that her "greatest concern" for 2021 is that "the 'Great Confinement' of 2020 will turn into a 'Great Divergence' in 2021".

"The divergence is deepest in the developing world, where half of the countries that used to normally accelerate income levels to the levels of their richer peers are now falling behind. But it is a risk for the EU as well," she said in the speech held from Washington by video conference.

Although the IMF is forecasting a 5.5 percent global economic recovery and 4.2 percent for the EU, "the path to recovery is highly uncertain and, more importantly, unbalanced".

"It is uncertain because of the current race between the virus and vaccines. Unbalanced because of the difference in starting positions, economic structures and ability to respond - causing a growth of inequalities both between and within countries," she said.

"Traditional tourist destinations experienced much sharper contractions - more than 9 per cent in Spain, Greece and Italy - compared to an average contraction of 6.4 per cent in the EU."

Furthermore, the IMF points out that by the end of 2022 "the 'per capita' income of emerging markets in Central and Eastern Europe will be 3.8 per cent below pre-crisis projections, compared to a 1.3 per cent decline in advanced EU economies - an almost three-fold negative impact that will slow the pace of convergence," she pointed out.

"Increases in divergence", with "regions with lower GDP [Gross Domestic Product] entering the crisis with lower productivity, large contact sectors, and fewer jobs that allow remote working", impacting millions of people, "with women and young people suffering most, especially those with lower incomes and savings".

She listed three key issues facing policymakers: the health crisis, the economic crisis and structural shifts to digitalisation and ecology.

"Until we defeat the pandemic everywhere, we risk new mutations that threaten our progress," she said of health, so "increasing the production and distribution of vaccines is critical."

On the economic crisis, she said support for households and businesses must continue "until the pandemic is defeated".

"A gradual withdrawal should follow, not precede, a lasting exit from the health crisis", something that "matters internally" to countries but also "in terms of contagion", as a withdrawal ahead of time "could exacerbate divergence between countries".

On digitalisation and ecology, Georgieva said "a coordinated 'push' of investment in 'green' infrastructure" is needed, with the IMF pointing to an annual increase in world GDP of 0.7% over 15 years.

She also suggested taxing carbon dioxide emissions, improving "access to high-speed internet in rural and underdeveloped areas", investing in education and vocational training, completing the banking and capital markets union in the EU and taxing companies "fit for the digital age" to cut inequalities.

JE/AYLS // AYLS

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