The International Monetary Fund (IMF) has further downgraded its expectations for the global economy in 2020 and 2021, projecting negative growth for all regions of the world for the first time in the history of its forecasts.
The fund on Wednesday released an update of its World Economic Outlook (WEO), anticipating a contraction of 4.9% in global gross domestic product (GDP) in 2020, 1.9% below the WEO’s April forecast.
According to IMF, the novel coronairus (COVID-19) pandemic has had a more negative impact on economic activities in the first half of the year than expected, and the recovery is projected to be more gradual than previously forecast.
The fund also downgraded its 2021 forecast for global economy growth to 5.4%, from 5.8% it forecast in April.
“Overall, this would leave 2021 GDP some 6.5% lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s,” according to the IMF.
The IMF mentioned that the estimated growth in the group of emerging and developing economies stood at -3.0% in 2020, a decrease of 2% compared to April forecast.
“Growth among low-income developing countries is projected at -1.0% in 2020, some 1.4% below the April 2020 WEO forecast, although with differences across individual countries. Excluding a few large frontier economies, the remaining group of low-income developing countries is projected to contract by -2.2% in 2020,” according to the IMF.
The IMF warned that its forecasts faced a number of uncertainties concerning the spread of the virus itself, urging countries to prioritise ample resources for the health system and then economic support through “sizeable, well-targeted” fiscal policies.
“In most recessions, consumers dig into their savings or rely on social safety nets and family support to smooth spending, and consumption is affected relatively less than investment. But this time, consumption and services output have also dropped markedly. The pattern reflects a unique combination of factors: voluntary social distancing, lockdowns needed to slow transmission and allow health care systems to handle rapidly rising caseloads, steep income losses, and weaker consumer confidence. Firms have also cut back on investment when faced with precipitous demand declines, supply interruptions, and uncertain future earnings prospects. Thus, there is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns,” the IMF mentioned.
“The steep decline in activity comes with a catastrophic hit to the global labour market. Some countries (notably in Europe) have contained the fallout with effective short-term work schemes,” the report said.
Nonetheless, according to the International Labour Organization, the global decline in work hours in the first quarter (1Q) of 2020 compared to 4Q 2019 was equivalent to the loss of 130m full-time jobs.
The decline in 2Q 2020 is likely to be equivalent to more than 300m full-time jobs. Where economies have been reopening, activity may have troughed in April—as suggested, for example, by the May employment report for the United States, where furloughed workers are returning to work in some of the sectors most affected by the lockdown.
The IMF forecasts the growth of US which is the World`s largest economy, to drop by 8% in 2020, a notable downgrade from its April growth forecast of -5.9%, expecting the US economy to rebound by 4.5% in 2021, down from its April projection of 4.7%.
