IMF upgrades 2020 economic forecast but warns of ‘scars’ left by pandemic

14 Oct 20

The global recession caused by Covid-19 will not be as bad as initially feared, but “tremendous uncertainty” remains, the IMF’s top economist has said.


Gopinath_World Economic Forum

IMF chief economist Gita Gopinath (photo: World Economic Forum)

Gita Gopinath said the fund has revised its 2020 global growth projection to -4.4%, a small upgrade from its -5.2% forecast in June.

“Living with the novel coronavirus has been a challenge like no other, but the world is adapting,” said Gopinath.

“As a result of eased lockdowns and rapid deployment of both monetary and fiscal policy support, the world is coming back from the depths of its collapse in the peak of the crisis, which was the first half of this year.”

But she warned the crisis “is far from over”, and said the recovery from “this calamitous ‘great lockdown’ is likely to be long, uneven and highly uncertain”.

She urged governments not to withdraw fiscal and monetary support for their economies prematurely, to help support the economic fightback.

The IMF has projected the world economy will grow by 5.2% in 2021, slightly below June’s forecast of 5.4%.

But, with as many as 90 million people expected to fall into extreme poverty in 2020 alone, and many economies reliant on industries showing little sign of making a full recovery, such as tourism and oil production, it will take considerable time for all aspects of the world economy to return to the pre-crisis state, Gopinath said.

“This crisis will leave scars well into the medium term as labour markets take time to heal, investment is held back by higher uncertainty and worsening balance sheets, and loss cooling impairs human capital,” she warned.

The cumulative loss in output over the medium term, relative to pre-crisis projections, is expected to be $28trn by the end of 2025.

“Now, there remains tremendous uncertainty around the outlook,” Gopinath said.

“There are both downside risks and upside risks. The virus is resurging, with localised lockdowns being reinstituted.

“If this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe.”

Gopinath called for greater international cooperation to end the health crisis, through work developing and producing treatments and vaccines.

Faster progress on medical solutions to Covid-19 could claw back almost one-third of the expected loss of output by 2025, she added.

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