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Global economy on brinks, GDP shrinking 4.9 per cent – IMF

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THE IMF has raised fresh alarm on global economic outlook, saying, the coronavirus pandemic is sparking economic “crisis like no other,” with world GDP plunging to 4.9 per cent this year and shedding $12 trillion over two years.

  According to IMF’s estimation, worldwide business shutdowns destroyed hundreds of millions of jobs, putting major economies in Europe to face double-digit collapse.

  In its updated World Economic Outlook, the world monetary organization says, prospects for recovery post-pandemic, like the forecasts themselves, are steeped in “pervasive uncertainty” given the unpredictable path of the virus.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the fund warned.

While businesses are reopening in many countries and China has seen a bigger rebound in activity than expected, a second wave of viral infections threatens the outlook, the report said.

World GDP is expected to rebound by just 5.4 per cent in 2021, and only if all goes well, the IMF warned.”

IMF Chief Economist, Gita Gopinath cautioned that under current forecasts, the crisis will destroy $12 trillion over two years, while warning that the outlook is not yet bright.

“Substantial joint support from fiscal and monetary policy must continue for now,” Gopinath said in a blog post.

The downturn is particularly damaging for low-income countries and households, and threatens to endanger the progress made on reducing extreme poverty, the Washington-based crisis lender said in its report.

The organisation made drastic downward revisions to most of the April forecasts made in the early days of the pandemic, raising fears that the coronavirus will leave lasting scars on employment, businesses and trade.

Hanging over the predictions is the bill for massive government stimulus plans, which were fueled by extremely low interest rates and likely prevented the recession from turning into a depression even as they created huge and ever-increasing debt levels.

The damage is nonetheless stunning, and more widespread than any downturn in recent decades. The recession in many major economies will be more than double that suffered during the global financial crisis in 2009, which came as major developing economies like China, India and Brazil were booming.

China will eke out growth of one percent this year, the only positive figure on the long list of key economies in the IMF tracks.

The United States will shrink eight per cent and Germany slightly less, while France, Italy, Spain and Britain will suffer double-digit contractions. Japan makes out a bit better with a drop of just 5.8 percent, according to the forecasts.

 “A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire job seekers after extended unemployment in addition to dangers posed by eroding relations between and within countries.” The Body warned.

“Beyond pandemic-related downside risks, escalating tensions between the United States and China on multiple fronts, frayed relationships among the Organisation of the Petroleum Exporting Countries (OPEC+) coalition of oil producers and widespread social unrest pose additional challenges to the global economy,” IMF noted.

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