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Wednesday, 14 October 2020

IMF warns of long, protracted recovery as it eases global recession forecast

IMF warns of long, slow recovery as it eases global recession forecast: The International Monetary Fund (IMF) now sees the world’s GDP contracting at a 4.4% pace — an improvement from the 4.9% it projected in its June outlook — after economies coming out of lockdown showed improved trade, retail activity, and growth figures, it said yesterday in its October World Economic Outlook (pdf). Launching the report titled “A long and difficult ascent,” the fund’s chief economist Gita Golpinath warned that the economic recovery will be “long, uneven and uncertain” as the pandemic continues to spread and countries begin to reintroduce lockdown measures. Many countries will see “lasting damage” to output, inflicting a “major setback” to living standards, she said, adding that the process of transferring workers from sectors at risk of long-term decline such as travel to growing industries like digital technology will require significant policy support.

The IMF has downgraded its outlook for 2021, saying it sees the global economy growing 5.2% and not the 5.4% it had previously forecast due to expectations that some restrictions on movement and social distancing may remain in place well into next year. The global economy experienced a “strong rebound in the third quarter, but slowing momentum entering the fourth quarter” as new infections rose across many developed economies, the report says.

The G20 group of countries, meanwhile, are expected to come out with statements today saying that the outlook for the global economy is less negative, according to a draft statement seen by Reuters. Steps taken to stimulate a recovery have paid off, and that the G20 is prepared to help if needed, reads the statement. Financial leaders from the world's top 20 economies will hold a meeting of finance ministers and central bankers virtually today to discuss pressing challenges as the pandemic will cause an output contraction this year.

How is Egypt faring in all of this? The IMF upgraded its growth projections for Omm El Donia to 3.5% this year from its 2% forecast in June. It left its 2021 forecast for 2.8% growth unchanged but sees output rising at a 5.8% clip by 2025.

Egypt is one of just three Middle East and Central Asia economies that won’t shrink this year. On the flipside, the IMF sees the country’s current account deficit widening to 4.2% of GDP in 2021 from 3.2% this year, and lists Egypt among several countries that are particularly vulnerable to a decline in remittance flows. It also predicts the unemployment rate to rise to 9.7% next year from 8.6% in 2019.

Emerging economies will lead global growth next year: Emerging economies are likely to contract 3.3% this year, a 0.2% downgrade from what the fund had projected in June, but this will be followed by 6% growth in 2021. This is above 2021 global growth forecasts and markedly higher than the 3.9% growth the fund is projecting for advanced economies. The hit to tourism, remittances and foreign debt hangs a dark cloud over emerging markets, the prospects for which “remain precarious,” the report said.

Governments across the world are going to have to step it up in the months ahead: Direct income support to those who’ve seen lost wages and unemployment insurance are some of the measures the IMF is recommending to help cushion declining spending. In terms of monetary policy the IMF is urging central banks in emerging markets that “launch asset purchases to communicate clearly the objectives of the program and its consistency with price stability objectives” to reduce the potential for inflation and capital flight.

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