In June 2020 forecast, IMF gloomier about global economy

The International Monetary Fund (IMF), in a June 2020 World Economic Outlook update, has projected shrinking of the global economy by 4.9 per cent in 2020.

This is 1.9 per centage points below the IMF’s April 2020 World Economic Outlook forecast.

“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said.

In 2021 global growth is projected at 5.4 per cent.

Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-Covid-19 projections of January 2020, the IMF said.

The adverse impact on low-income households is particularly acute, imperilling the significant progress made in reducing extreme poverty in the world since the 1990s, it said.

“As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast,” the IMF said.

The baseline projection rests on key assumptions about the fallout from the pandemic.

“In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices.”

For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity.

Moreover, the forecast assumes that financial conditions—which have eased following the release of theApril 2020 WEO—will remain broadly at current levels.

Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving.

The extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects—as the June 2020 Global Financial Stability Report (GFSR) Update discusses—raising the possibility that financial conditions may tighten more than assumed in the baseline the IMF said.

“All countries—including those that have seemingly passed peaks in infections—should ensure that their health care systems are adequately resourced.

“The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited health care capacity and channeling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries.”

The IMF said that where lockdowns are required, economic policy should continue to cushion household income losses “with sizeable, well-targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity”.

“Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic,” the IMF said.

(Image: John Casso)

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The Sofia Globe staff

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