IMF isn’t convinced the global economy can shake the ‘Great Lockdown’ by 2021
The International Monetary Fund on Tuesday forecast that the global economy would recover partially next year from the “Great Lockdown” of 2020, but the economists at the international financial institution didn’t sound entirely convinced.
“Much worse growth outcomes are possible and maybe even likely,” said Gita Gopinath, the IMF’s top economist, with the Tuesday release.
The new forecast sees the global economy contracting at a 3% annual rate this year followed by a 5.8% rebound in 2021. That’s a deeper recession than during the 2008-2009 financial crisis. The IMF sees coronavirus pandemic peaking in the second quarter of this year in most countries in the world.
The IMF said the U.S. economy would shrink 5.9% this year, the steepest drop since the financial crisis.That’s 7.2 percentage points lower than the group’s prediction for 2020 offered at the beginning of the year. This would be followed by a 4.7% rebound in 2021. The gain in 2021 is 3.1 percentage points higher than the earlier forecast.
IMF’s new forecasts: Sharp declines this year followed by rebounds in 2021
China’s growth rate this year would be the lowest since 1976, according to Macrotrends. The IMF has forecast 6% growth this year for the Asian giant.
All together, the cumulative loss to global GDP over 2020 and 2021 could be about $9 trillion, Gopinath, said.
And there are more pessimistic scenarios. For instance, if the pandemic lasts into 2021, it could reduce the level of global GDP by 8% compared with the baseline, she added.
The IMF said that the economic fallout of COVID-19 depends on factors that interact in ways that are hard to predict.
Many smaller countries face “a multilayered crisis comprising of a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals and a collapse in commodity prices.
The international community will have to step up financial assistance and for those countries facing large debt repayments, “debt moratoria and restructuring may need to be considered,” said Gopinath, the chief economist.
One reason for optimism is that when the world faced a crisis of this magnitude in the 1930s, there was no multilateral economic system and countries had to compete against each other for funds like placing tariffs on imported goods. In this crisis, there is a stronger safety net with the IMF determined to help, Gopinath added.
U.S. equity benchmarks were higher Tuesday on optimism the worst of the COVID-19 pandemic is over. The Dow Jones Industrial Average DJIA, -1.86% was up 563 points will all 30 components higher.