IMF predicts deeper contraction in global economy, sees $12 trillion loss in 2020-21

Dubai - It projected 5.4 per cent global growth for the next year.

The International Monetary Fund (IMF) on Wednesday revised down its projection for the global and Middle East region yet again, predicting deeper negative growth this year and even slower recovery next year due to the coronavirus pandemic having a bigger impact than anticipated in the first half of 2020.

The Fund projected that global and Middle East and Central Asia (MECA) economies will contract 4.9 per cent and 4.7 per cent, respectively, in 2020, which is 1.9 per cent more than its April forecast for both of them.

Similarly, it projected 5.4 per cent global growth for the next year, 0.4 per cent less than its previous estimate, while MECA region is estimated to grow at 3.3 per cent, 0.7 per cent slower than the April forecast.
Globally, announced fiscal support reached close to $11 trillion, up from $8 trillion in April.

Gita Gopinath, IMF's chief economist, said these projections imply a cumulative loss to the global economy of over $12 trillion during 2020-21 as compared to $9 trillion projected two months ago.

"There is a higher-than-usual degree of uncertainty around this forecast. In economies with declining infection rates, the slower recovery path reflects persistent social distancing into the second half of 2020. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity," said Gopinath.

"Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well-targeted measures as well as provide support to firms. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivise the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic," Gopinath said.

Despite the reduction in its global economic forecast, IMF kept oil prices broadly unchanged from its April forecast. It estimated oil to trade at $36.20 in 2020 and $37.50 next year.

Major economies

For the first time, all regions are projected to experience negative growth in 2020. The US and advanced economies are likely to contract eight per cent and 2.1 per cent, respectively, while Europe will shrink 10.2 per cent, which is 2.7 per cent more than IMF's April forecast, while Emerging and Developing Asia is projected to contract 0.8 per cent.

In China, where the recovery from the sharp contraction in the first quarter is underway, growth is projected at 1.0 per cent in 2020, supported in part by policy stimulus. IMF projected 8.2 per cent growth for 2021.

India's economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated its previous forecast.

Saudi Arabia is likely to contract 6.8 per cent as against IMF's previous forecast of 4.5 per cent.

IMF said the pandemic rapidly intensified in a number of emerging markets and developing economies since April, necessitating stringent lockdowns and resulting in even larger disruptions to activity than forecast. In other countries, recorded infections and mortality have instead been more modest on a per capita basis, although limited testing implies considerable uncertainty about the path of the pandemic.

In many advanced economies, the pace of new infections and hospital intensive care occupancy rates have declined thanks to weeks of lockdowns and voluntary distancing, it added.

waheedabbas@khaleejtimes.com