IMF projects weakened economic outlook

IMF projects weakened economic outlook

Global growth for 2020 drops to -4.9 per cent

Wednesday, July 01, 2020

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THE International Monetary Fund (IMF), in its latest World Economic Outlook (WEO), is suggesting that as the global economic outlook declines, the COVID-19 crisis will result in a more severe economic fallout than anticipated.

With global growth now projected at -4.9 per cent for this year, some 1.9 percentage points lower than that previously projected in its April WEO forecast, the IMF said that the pandemic is a crisis like no other — one marked by an uncertain reality.

“As with the April WEO projections, there is a higher-than-usual degree of uncertainty around this forecast as the baseline projection now rests on key assumptions about the fallout from the pandemic. Following the release of [those projections], the pandemic rapidly intensified in a number of emerging market and developing economies, necessitating stringent lockdowns and resulting in even larger disruptions to activity than forecasted,” the entity outlined in this month's outlook.

The international lending agency further noted that for 2021 global growth could amount to 5.6 per cent, still lessening GDP for that year by about 6.5 percentage points than that of the pre-COVID-19 projections announced at the start of the year.

The IMF reasoned that much of the pervasive uncertainty around this updated forecast stems from the depth of contractions in the second quarter as well as the magnitude and persistence of the adverse shocks.

The uncertainty of these factors as outlined by the entity are based on “the length of the pandemic and the required lockdowns, voluntary social distancing (which will affect spending), displaced workers' ability to secure employment, scarring from firm closures and unemployed workers exiting the workforce, which may make it more difficult for activity to bounce back once the pandemic fades” among other factors.

The entity however said that the downturn could be less severe than forecast if economic normalisation proceeds faster than currently expected in areas that have reopened.

“Where economies are reopening, targeted support should be gradually unwounded as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivise the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic,” the IMF advised, noting also that liquidity assistance may be needed for those countries severely affected by the health crisis and having shortfalls in external funding needed for 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,” the entity also said.

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