Amid grim outlook, IMF says things could get better, or worse

Agence France-Presse
Amid grim outlook, IMF says things could get better, or worse
(UPDATED) The International Monetary Fund acknowledges the high levels of uncertainty as the coronavirus pandemic ravages the global economy

WASHINGTON, USA (UPDATED) – Coronavirus shutdowns have made for a grim global outlook this year, but the International Monetary Fund (IMF) said on Wednesday, June 24, if things go right, the recovery could come sooner than projected in their main forecast.

The situation could also deteriorate beyond the tough figures given in the World Economic Outlook, which project a global contraction of 4.9%, followed by a recovery of 5.4% in 2021.

The report acknowledged the high levels of uncertainty around the forecast, but also offered two alternative scenarios, one of which allows for the possibility the downturn might not be quite as terrible.

At the time of the April forecast, IMF chief economist Gita Gopinath said her team “very strongly felt that the uncertainty was predominantly on the downside. This time round, we have both an upside risk, and a downside scenario.” 

There is “the upside possibility that you might have better news on treatments and vaccines and, you know, economies can recover much faster,” she told Agence France-Presse in an interview.

But she cautioned “the downside risks are also quite severe.”

A second outbreak

One possibility is a second major outbreak takes place in early 2021, with new measures imposed to contain the spread that would be less disruptive than those used this year.

But even with additional fiscal support from governments, “the outbreak is assumed to cause further longer-lived damage to the supply side of economies (scarring) starting in 2022, as increased bankruptcies lead to capital destruction, temporary slowing in productivity growth, and a temporary increase in trend unemployment.”

In that case, the global economy would see growth of just 0.5% in 2021.

A faster recovery

The other possibility is that the recovery is faster than forecast, as effective containment of the virus leads to “less precautionary behavior by households and firms once the lockdowns are lifted.”

It also assumes governments continue the spending measures to support businesses and households with “no partial rollback in response to the improved outlook.”

That would mean a smaller downturn in 2020 of 4.5%, and a faster recovery next year, with 8.4% global growth. –

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