Even though the virus-induced global economic crisis is far from over, the International Monetary Fund (IMF) considers the downturn less severe than initially anticipated. But a quick recovery next year isn’t assured.
The global economy is set to decline by 4.4% this year and could be expanding at a rate of 5.2% in 2021, the International Monetary Fund (IMF) said on Tuesday, as it published its latest World Economic Outlook report.
“We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” IMF chief economist Gita Gopinath said in a blog post that accompanied the report by the global lender of last resort. She was referring to a June forecast that predicted a contraction of 4.9% due to the coronavirus pandemic.
“Unprecedented fiscal, monetary, and regulatory responses” to the crisis had kept economies from plunging deeper into recession, she said, while at the same time warning that the ascent would “likely be long, uneven, and uncertain.”
Amid the virus-induced economic shutdowns, the rapid rollout of $12 trillion (€10.2 trillion) in government spending worldwide helped save lives and livelihoods and “prevented a financial catastrophe,” the report noted. But the long-lasting and serious nature of the crisis, which has caused massive unemployment as well as more than a million deaths, meant government support would continue to be critical, the IMF added.
The IMF thus labeled its outlook report as fraught with “unusually large risks,” especially for emerging and developing economies, where amid surging COVID-19 cases, prospects had “worsened significantly” compared with the lender’s June forecast.
In upgrading the 2020 GDP forecast by 0.8 percentage points, the IMF especially sees China, where the coronavirus originated, as recovering faster than the rest of the world. The world’s second-largest economy is projected to grow 1.9% this year and accelerate to 8.2% in 2021.
In the United States, the growth estimate also saw a major upgrade after the country deployed $3 trillion in stimulus spending in the early weeks of the pandemic. The US economy would fall 4.3% this year, the report said, but was set to rebound to growth of 3.1% in 2021.
As for the eurozone economy, IMF data shows a historic crash in 2020, with the slump of 8.3% “not seen since the 1930s Great Depression.” The report said Spain would suffer the most, with GDP sliding by 12.8%, to be followed by Italy with a 10.6% contraction, and France down by 8.3%. The EU’s economic powerhouse, Germany, would shrink by about 6%, the data suggests. Across the European Union, the recovery in 2021 would be slower than anticipated, the IMF said, with GDP expected to grow by 5.2%, and weaker than the 6.0% predicted in its June forecast.
While most countries will see their economies return to pre-pandemic levels by 2022, some like those in Latin America will not see a recovery until 2023, Gopinath said.
Taxing the rich to overcome the crisis
The IMF chief economist underscored that the spread of Covid-19 remained the critical factor in the recovery, saying that “many more millions of jobs are at risk the longer this crisis continues.”
She called on governments to continue financial lifelines, including wage support, cash payments and credit lines for small and medium businesses, until the recovery was underway. At the same time, Gopinath warned that removing them too soon could lead to a wave of bankruptcies and push economies back into recession.
“Most economies will experience lasting damage to supply potential, reflecting scars from the deep recession this year,” she added.
According to a recent estimate by the World Bank, up to 150 million more people may be pushed into extreme poverty by 2021, the first time poverty has worsened in more than two decades.
In view of the dire figure, the IMF called on governments to rethink their spending priorities and direct funding to projects that will boost productivity, including green energy investments and education. Policymakers may need to increase taxes on the highest earners, cut out loopholes and deductions “and ensure that corporations pay their fair share of taxes while eliminating wasteful spending,” the lender urged in the report. uhe/tj (Reuters, AFP, dpa)