Global GDP is now expected to shrink by 4.9% this year, and is expected to shrink by 3% in April The IMF says the improvement in financial market sentiment seems to be out of touch with the economic outlook The International Monetary Fund (IMF) has lowered its outlook on the world economy that has been severely impacted by coronaviruses. Compared with just two months ago, the organization expects the recession to be more severe and the recovery to be even slower. The fund said on Wednesday that it now expects global GDP to shrink by 4.9% this year, more than the 3% contraction expected in April. The global economy is expected to grow by 5.4% in 2021, which is lower than the previously expected 5.8%. The IMF said its more pessimistic sentiment towards the economy reflected the supply shocks that had been exceeded during the previous blockade, as well as the continued blow to demand by maintaining social distance and other security measures. The IMF said that for countries that are struggling to control the spread of the virus, a longer blockade period will also hurt economic growth. In its latest World Economic Outlook report, the IMF said: "As the pandemic continues to spread, the prospects for long-term negative impacts on livelihoods, job security and inequality become more severe."
The International Monetary Fund warned that a rebound in global financial market sentiment “appears to be disconnected from the shift in basic economic prospects,” which increases the likelihood that the financial situation will tighten more than expected under its core scenario. The fund has lowered consumption expectations for most economies because domestic economic activity has been disrupted beyond expectations, social alienation measures have caused demand shocks, and preventive savings have increased. In recent weeks, the IMF has repeatedly stated that it may lower its economic forecast in mid-April based on the data received. Its chief economist Gita Gopinath said on May 8 that the global outlook has deteriorated. The IMF's prediction assumes that countries with a reduced infection rate will no longer need to restore the strict blockade measures in the first half of this year, but can rely on other methods, such as increased detection, contact tracking and quarantine to curb the spread of the virus. One bright spot is the financial situation. The financial situation of advanced economies has been relaxed, and the financial situation of emerging markets has been somewhat relaxed. The total amount of fiscal stimulus announced globally reached approximately US$11 trillion, higher than the estimated US$8 trillion in April, which helped ease the blow to workers and businesses. The central bank’s rapid and innovative interventions have limited the rise in borrowing costs, and emerging market portfolio capital inflows have recovered from a record divestment.The fund said its latest forecast may be adjusted based on the duration of the outbreak and blockade, voluntary social alienation, and the ability of unemployed workers to find work.
Debt crisis
If medical breakthroughs are made or business activities resume faster, the IMF may raise its forecast, but there are also significant downside risks, including the need to increase the anti-epidemic blockade and the tightening of the financial situation.
The International Monetary Fund said: "This may put some economies into a debt crisis and further slow down economic activity."
In the United States, GDP is expected to contract by 8% in 2020, compared with the previous forecast of 5.9% contraction. The IMF said the US economy may grow 4.5% next year.
The fund said the euro zone economy may contract by 10.2% in 2020 and grow by 6% in 2021.
The International Monetary Fund believes that advanced economies will shrink the most and will contract by 8%, compared with the previous forecast of contraction of 6.1%. Emerging markets and developing economies are expected to contract by 3%, compared with the forecast of 1% in April. Supported by policy stimulus measures, the Chinese economy will still grow by 1%.
Trade decline
The fund said that among the largest economies, India’s economic outlook has been revised the most compared to April’s economic forecast. It is currently expected to contract by 4.5%, compared with the previous forecast of an increase of 1.9%. Brazil and Mexico, the two largest economies in Latin America, are expected to shrink by 9.1% and 10.5%, respectively.
The fund said that global trade in goods and services may fall by 11.9% this year.
The International Monetary Fund has warned that the impact of this pandemic may greatly exacerbate inequality, and it is expected that more than 90% of emerging markets and developing economies will experience a decline in per capita income.
The IMF has proposed two alternative scenarios: One is the second wave of virus outbreak in early 2021, which damages domestic economic activity by about half of the scale envisaged this year. This scenario assumes that emerging markets suffer more severely than developed economies because they have more limited space to take action to support income. In this case, economic output in 2021 will be 4.9% lower than the basic forecast scenario, and will continue to fall below the baseline assumption in 2022.
In the second case, as the recovery is faster than expected, global output will be about 0.5 percentage points higher than this year’s baseline scenario, and 3% higher in 2021.
Comments
Post a Comment