IMF envisions sharp 4.4% drop in global growth for 2020

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IMF envisions sharp 4.4% drop in global growth for 2020

Wednesday, October 14, 2020

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WASHINGTON (AP) — The International Monetary Fund (IMF) foresees a steep fall in international growth this year as the global economy struggles to recover from the pandemic-induced recession, its worst collapse in nearly a century.

The IMF estimated yesterday that the global economy will shrink 4.4 per cent for 2020. That would be the worst annual plunge since the Great Depression of the 1930s. By comparison, the international economy contracted by a far smaller 0.1 per cent after the devastating 2008 financial crisis.

The monetary fund's forecast for 2020 in its latest World Economic Outlook does represent an upgrade of 0.8 percentage point from its previous forecast in June. The IMF attributed the slightly less dire forecast to faster-than-expected rebounds in some countries, notably China, and to government rescue aid that was enacted by the United States and other major industrial countries.

While forecasting a global contraction this year, after 2.8 per cent growth in 2019, the IMF predicts a rebound to global growth of 5.2 per cent next year, 0.2 percentage point lower than in its June forecast.

The 189-nation lending agency cautioned that many developing countries, notably India, are faring worse than expected, in large part because of a resurgent virus. Many nations face the threat of economic reversals if government support is withdrawn too quickly, the IMF warned.

“While the global economy is coming back, the ascent will be long, uneven and uncertain,” Gita Gopinath, the IMF's chief economist, wrote in the new outlook. “Recovery is not assured while the pandemic continues to spread.”

At a news conference, Gopinath said it was critical that government economic support not be withdrawn too quickly.

“This crisis will leave scars,” she told reporters, stemming from damage to labour markets that will take time to regain lost jobs, lost business investment and diminished schooling that will reduce the development of human capital around the world.

For the United States, the IMF forecasts an economic contraction of 4.3 per cent this year, 3.7 percentage points better than in its June forecast. The less-pessimistic outlook reflects a stronger-than-expected bounce from the US$3 trillion in relief aid that Congress enacted earlier this year.

For next year, the IMF envisions 3.1 per cent growth in the United States, 1.4 percentage points less than in its June outlook and in line with the view of private forecasters. Last year, the US economy grew 2.2 per cent.

China, the world's second-largest economy, is expected to grow 1.9 per cent this year, a sharp slow down from the 6.1 per cent gain in 2019, and then expand 8.2 per cent in 2021.

The IMF said that while a swift recovery in China had surprised forecasters, the global rebound remains vulnerable to setbacks. It noted that “prospects have worsened significantly in some developing countries where infections are rising rapidly” and that in India and in poorer nations in Africa and Asia, the pandemic has continued to spread and in some areas even accelerate.

“Preventing further policy setbacks,” the IMF said, “will require that policy support is not prematurely withdrawn.”

Even as China has rebounded much faster than many expected, India, another populous country in Asia, is enduring difficulties. India's economy is expected to contract 10.3 per cent this year — 5.8 percentage points deeper than the decline the IMF had forecast in June.

The monetary fund predicted that the euro area, which covers the 19 European nations that use the euro currency, would contract 8.3 per cent this year but rebound 5.2 per cent next year.

The IMF produced the updated outlook for this week's virtual meetings of the 189-nation lending institution and its sister institution, the World Bank.

Poor countries have been hurt the most by the pandemic. The World Bank has estimated that the pandemic has thrown between 88 million and 114 million people into extreme poverty, which is defined as living on less than US$1.90 a day. That would mark the largest increase in extreme poverty on data going back to 1990. And it would end a period of more than two decades in which the rate of extreme poverty had declined.


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