IMF forecast -3% negative growth in world economy in 2020

IMF painted gloomy picture of world economy in 2020

                             

The International Monetary Fund (IMF) has once again revised its forecast for the world economy in just three months. The outlook is gloomy for GDP growth rates and world trade. The pandemic has caused major disruptions in world supply chains and contracting the world trade.

There will be negative growth in the major economies and world growth will be -3% in 2020. The North America and Euro Zone will be hardest hit by this epidemic. World economy is going to experience a deep recession not seen since 1929 Great Depression. There will be high unemployment as businesses will shed jobs and massive layoffs of workers in major sectors of economy.  

The International Monetary Fund (IMF) on Tuesday in its latest global outlook painted a grim picture of the global economy, which would take a heavy beating from the coronavirus outbreak this year with its impact far worse than the Great Recession over a decade ago.

The Outlook suggested that the world economy in 2020 would see its worst year since the Great Depression of the 1929. It expected the global economy to shrink 3% this year — far worse than its 0.1% dip in the Great Recession year of 2008-09.

At the start of 2020, when the virus had just surfaced in China but had not become a threat to the entire world, the IMF had forecast a moderate global growth of 3.3% this year. But in the latest outlook, it expected 5.9% economic contractions in the US and 7.5% in the 19-country Euro zone.

Among other major economies, Japan will suffer a contraction of 5.2% in and 6.5% in the United Kingdom. China, world’s second-biggest economy where the pandemic originated, is expected to eke out 1.2% growth this year. World trade will fall nearly 11% this year.

For the first time since the Great Depression both advanced economies and emerging market and developing economies are in recession. For this year, growth in advanced economies is projected at -6.1 percent. Emerging market and developing economies with normal growth levels well above advanced economies are also projected to have negative growth rates of -1.0 percent in 2020, and -2.2 percent if you exclude China.

Income per capita is projected to shrink for over 170 countries. Both advanced and emerging market and developing economies are expected to partially recover in 2021.

The outbreak of coronavirus pandemic has drastically changed the outlook for world economy. The world has changed dramatically in the three months.  The COVID-19 pandemic has not only taken human lives but also severely impacted the economies and livelihood. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in economic activity globally has unlike anything experienced in our lifetimes.

Strict measures to contain the spread of Covid-19 pandemic such as lockdowns of cities, even the whole countries in some instances, shutdown of businesses, social distancing and travel restrictions, have contributed immensely to bring economic activity to a near-standstill across much of the world.

The IMF said Tuesday expected the economic rebound in 2021 with 5.8% growth and 8.4% growth in the international trade. However, it admitted that those prospects for the turnaround next year would be clouded by uncertainty.

It said a rebound depended on what path the virus will take; the effectiveness of policies meant to contain the outbreak and minimise the economic damage; and whether, after many months from now, people will continue to isolate themselves as a precaution against a potential resurgence of the virus.

There are hopes that the pandemic might receded in the second half of the 2020 but if the pandemic lasted longer than the economic crisis will be even more severe and hard hitting.  There is extreme uncertainty around the duration and intensity of the health crisis; we also explore alternative, more adverse scenarios.

The pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains. In such cases, global GDP would fall even further: an additional 3 percent in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, the world economy might fall further 8%. It is worst case scenario and weaker economies will suffer enormously under those conditions.

Last week, the IMF’s managing director, Kristalina Georgieva, warned that the world was facing “the worst economic fallout since the Great Depression.” She said that emerging markets and low-income nations across Africa, Latin America and much of Asia were at especially high risk. And on Monday, the IMF approved $500 million to cancel six months of debt payments for 25 impoverished countries so they can help confront the pandemic.

The IMF noted that policymakers in many countries have devised a “swift and sizable” response to the economic crisis. The United States, for instance, has enacted three separate rescue measures, including a $2.2 trillion aid package — the largest in history.

The IMF and the World Bank are providing emergency funds to developing and low-income countries to strengthen their efforts to battle the virus. The countries slated to receive funds, include Pakistan, $200 million; India, $1 billion; Ghana, $1 billion; Tunisia, $745 million and Afghanistan, $100.4 million.

Other countries on the list are Senegal, Chad, DR Congo, Cambodia, Kyrgyzstan, Maldives, Mongolia, Sri Lanka, Tajikistan, Yemen, Argentina, Ecuador, Haiti, Honduras, Paraguay, Albania, Kosovo and North Macedonia.

                                                             Khalid Bhatti