IMF forecasts deeper recession, slower recovery as virus fears linger
YOUR DAILY DOSE OF GLOOM- IMF forecasts deeper global recession, slower recovery as virus fears linger: The global economy will suffer a deeper recession than previously expected as the pandemic continues to intensify in some parts of the world, and businesses and consumers continue to reel from the effects of the “Great Lockdown,” the IMF said yesterday. In its updated World Economic Outlook, the fund projects the world economy to contract 4.9% in 2020, a significant revision from the 3% recession projected in April. Growth forecasts for next year have also been taken down a notch, with the economy now expected to expand at a 5.4% clip, down from 5.8% previously.
“The downgrade from April reflects worse than anticipated outcomes in the first half of this year, an expectation of more persistent social distancing into the second half of this year, and damage to supply potential,” IMF chief economist Gita Gopinath wrote in a blog post accompanying the report.
Things just got that much worse for the developed world: The IMF now expects advanced economies to shrink by 8% (a deterioration from 6.1% in April). France, Italy, and Spain will each contract by almost 13%, the UK more than 10% and the US 8%. Economic projections in the emerging world were also lowered by 2%, with the fund now expecting GDP to fall 3% on aggregate. China will be the lone big emerging economy to expand this year, seeing 1% growth before surging to 8.2% in 2021.
“This crisis like no other will have a recovery like no other”: When it comes to recovery, we’re going to have to be patient. The unprecedented damage caused to the labor market will bite, as will uneven recoveries when everyone — developed markets and EM, exporters and importers — has just taken it on the chin. Consumption and investment are both expected to improve next year but a host of variables — including the restoration of supply chains, job creation, voluntary social distancing and workplace safety measures — could soon throw this off.
The IMF now sees the Egyptian economy maintaining 2% growth through to the end of 2021, scaling back its earlier projection that Egypt’s economy would grow 2% in 2020 and 2.8% in 2021.
Still, this would be a pretty exceptional performance, given the dire situation for other economies in the region and the wider world. Of the MENA countries surveyed by the IMF, Egypt will be the only economy to maintain growth this year. Saudi Arabia is now expected to contract by a whopping 6.8% this year (a 4.5% downgrade from April) and Turkey’s economy will shrink 5%.
Take all of this with a massive pinch of salt: Gopinath was at pains to convey the level of continued uncertainty surrounding the trajectory of the global economy. “A high degree of uncertainty surrounds this forecast, with both upside and downside risks to the outlook,” she wrote, noting the potential for both a vaccine and a second outbreak to seriously change the dynamics of the economy.