The prospects for recovery post-pandemic – like the forecasts themselves – are steeped in 'pervasive uncertainty' given the...
The International Monetary Fund (IMF) on Wednesday said the coronavirus pandemic has sparked an economic “crisis like no other,” sending the world GDP plunging 4.9% this year and wiping out $12 trillion over two years.
Worldwide business shutdowns destroyed hundreds of millions of jobs, and major economies in Europe face double-digit collapses in the worst crisis since the Great Depression nearly a century ago.
The IMF, in its updated World Economic Outlook, said the prospects for recovery post-pandemic – like the forecasts themselves – are steeped in “pervasive uncertainty” given the unpredictable path of the virus.
“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 Fund warned.
While businesses are reopening in many countries and China has seen a bigger rebound in activity than expected, the second wave of viral infection threatens the outlook, the report said. The world GDP is expected to rebound by just 5.4% in 2021, and only if all goes well, the IMF warned.
IMF chief economist Gita Gopinath said under the current forecasts, the crisis will destroy $12 trillion over two years, and cautioned, “We are not out of the woods.”
She warned governments against withdrawing the stimulus too quickly. "This is a crisis that requires all hands on deck," she told reporters. While governments and central banks have gone to extraordinary lengths so far to provide support for workers and businesses, "more will be needed." "It’s important not to back off very quickly, but to do so only gradually, because this crisis is not over," Gopinath said.
The downturn is particularly damaging for low-income countries and households, and threatens to endanger the progress made on reducing extreme poverty, the Washington-based crisis lender said in its report.
The Fund made drastic downward revisions to most of the April forecasts made in the early days of the pandemic, and IMF economists fear the coronavirus will leave lasting scars on employment, businesses and trade. Hanging over the predictions are the bills for massive government stimulus plans, fueled by extremely low-interest rates and likely preventing the recession from turning into another depression, even as they created huge and ever-increasing debt levels. The damage is nonetheless stunning and more widespread than any downturn in recent decades.
China will eke outgrowth of 1% this year, the only positive figure on the long list of key economies the IMF tracks. The United States will shrink 8% and Germany slightly less, while France, Italy, Spain and Britain will suffer double-digit contractions. Japan makes out a bit better with a drop of just 5.8%, according to the forecasts.
Mexico also will see a double-digit decline, while Brazil just misses that mark, as does Argentina, which is in the middle of a massive debt crunch on top of its health and economic crises after the country once again defaulted on its foreign obligations.
The IMF pointed to the International Labour Organisation data estimating more than 300 million jobs were lost in the second quarter of the year. "A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment," the Fund warned.
With transport and manufacturing shut down for weeks, the IMF projects global trade volume will collapse by just under 12% -- and advanced economies will see an even more dramatic drop. The IMF also warned of dangers posed by eroding relations between and within countries. "Beyond pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organisation of the Petroleum Exporting Countries (OPEC+) coalition of oil producers and widespread social unrest pose additional challenges to the global economy," the report said.
Trade disruptions could undermine productivity as firms shift supply chains to try to protect themselves against future breakdowns, and companies also face higher costs as they adopt enhanced cleaning procedures and social distancing requirements. Amid the uncertainty, there is a chance the recession could be less severe than forecast, the report said. "Downside risks, however, remain significant," it warned.
The IMF has projected Pakistan’s GDP growth at positive 1% for the fiscal year 2020-21 against Islamabad’s official projection of 2.1%. However, the Fund has shown improved projection from April 2020 when it had projected Pakistan’s GDP growth at negative -1% for FY 2021.
The World Economic Outlook (WEO) report released on Wednesday showed that Pakistan’s GDP growth remained negative 0.4% for the outgoing fiscal year 2019-20 ending on June 30, 2020, against positive 1.9% for the previous financial year 2018-19. The IMF had shown Pakistan’s GDP growth rate at 5.5% for the fiscal year 2017-18.
The IMF statement issued along with the WEO report stated that global growth was projected at –4.9% in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) 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. In 2021 global growth is projected at 5.4%.
Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. 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. As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast.
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 April 2020 WEO —will remain broadly at current levels. Alternative outcomes to those in the baseline are 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. 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 channelling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries. Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, 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.
Strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis.
Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes. The global community must act now to avoid a repeat of this catastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to the neediest, the IMF added.