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IMF forecasts deeper global recession amid pandemic

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THE International Monetary Fund has projected a significantly deeper recession and slower recovery than it anticipated two months ago, admitting that it downgraded the  outlook for the coronavirus-ravaged world economy.

  In its report today, the Body said, it expects global gross domestic product to shrink 4.9 per cent this year, more than the 3 per cent predicted in April. For 2021, the organization forecast growth of 5.4 per cent, down from 5.8 per cent.

According to IMF, its increased pessimism reflected scarring from a larger-than-anticipated supply shock during the earlier lockdown, in addition to the continued hit to demand from social distancing and other safety measures, having already warned of the biggest slump since the Great Depression,

For nations struggling to control the virus spread, a longer lockdown also will take a toll on growth, the IMF said.

“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” the lender said in its update on the World Economic Outlook.

The IMF warned that the rebound in global financial-market sentiment “appears disconnected from shifts in underlying economic prospects,” raising the possibility that financial conditions will tighten more than forecast in its core scenario.

The organisation lowered its expectations for consumption in most economies based on a larger-than-expected disruption to domestic activity, demand shocks from social distancing and an increase in precautionary savings.

The projections assume that countries with declining infection rates don’t need to reinstate the strict lockdowns from the first half of the year and are able to rely on alternative methods such as increased testing, contact tracing and isolation to contain transmission.

One bright spot has been financial conditions, which have eased in advanced economies and to a lesser extent in emerging markets.

The forecast could be upgraded if there’s a medical breakthrough or business activity resumes more quickly, but significant downside risks include outbreaks requiring more lockdowns or tightening financial conditions.

“This could tip some economies into debt crises and slow activity further,” the IMF said.

In the U.S., GDP is expected to contract 8 per cent in 2020, compared with the previous 5.9 per cent projection. The world’s largest economy may grow 4.5 per cent next year, the IMF said.

The euro area will probably shrink 10.2 per cent in 2020 and expand 6 per cent in 2021, IMF projects.

The Body has projected likely more shrinking of advanced economies to the tone of 8 per cent contraction, compared with 6.1 per cent previously. Emerging-market and developing economies will see a 3 per cent contraction, compared with the 1 per cent forecast in April, while China will still manage to expand 1 per cent with the policy stimulus they have so far evolved.

Global trade volume in goods and services will probably tumble 11.9 per cent this year, according to IMF.

The body maintained warned that the pandemic’s impact may significantly increase inequality, with more than 90 per cent of emerging-market and developing economies forecast to show declines in per capita income.

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