Following the outbreak of the COVID-19 pandemic and its impact on several economies, the International Monetary Fund (IMF) has predicted that the global economy will experience a decline in the year 2020.
the IMF’s economic counsellor, Gita Gopinath, described the pandemic as the worst crisis since the Great Depression, and said it would leave deep and enduring scars caused by job losses, weaker investment and children being deprived of education.
In its flagship world economic outlook, the IMF said a stronger than expected performance in the second and third quarters meant it believed global output would fall by 4.4% in 2020 compared with the 5.2% drop forecast during the summer.
But the Washington-based organisation said rising infection rates in some emerging market economies had forced it to pare back its estimate of the rebound in 2021 from 5.4% to 5.2%.
It added that the gap between rich and poor countries was growing.
Gopinath stated:
The cumulative loss in output relative to the pre-pandemic projected path is projected to grow from $11tn over 2020-21 to $28tn over 2020-25.
This represents a severe setback to the improvement in average living standards across all country groups.
The IMF said swift action by central banks had softened the impact of the damage to economic activity caused by lockdowns, and warned against the premature removal of support measures.
🆕 Latest growth projections for the global economy and for countries in the October 2020 World Economic Outlook #WEO. #IMFBlog https://t.co/ZpkEgqFQHK pic.twitter.com/FgNk2SlRxr
— IMF (@IMFNews) October 14, 2020
Gopinath said:
The considerable global fiscal support of close to $12tn and the extensive rate cuts, liquidity injections, and asset purchases by central banks helped save lives and livelihoods and prevented a financial catastrophe.
With the UK announcing a tiered system of local lockdowns this week, Gopinath said that “to the extent possible, policies must aggressively focus on limiting persistent economic damage from this crisis.”
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She said:
Governments should continue to provide income support through well targeted cash transfers, wage subsidies, and unemployment insurance. To prevent large-scale bankruptcies and ensure workers can return to productive jobs, vulnerable but viable firms should continue to receive support – wherever possible – through tax deferrals, moratoria on debt service and equity-like injections.
The WEO’s country-by-country breakdown predicted the UK economy would shrink by 9.8% this year. This is an improvement on the 10.2% decline forecast in the summer but still the joint second worst alongside France among the G7 group of industrialised nations.
The US is expected to be the least affected of the major advanced economies: the IMF expectis a contraction in output of 4.3%. Only Italy, projected to suffer a 10.6% drop in activity, will fare worse than the UK this year, the IMF said.
