The International Monetary Fund (IMF)’s latest World Economic Outlook (WEO) sees the global economy faltering and forecasts negative global growth of minus three percent in 2020 because of the Covid-19 pandemic.
Gita Gopinath, IMF’s Chief Economist said, “under the assumption that the pandemic and required containment peaks in the second quarter in most countries of the world and then recedes in the second half of this year, we are projecting global growth in 2020 to fall to minus 3 percent. This is a downgrade of 6.3 percentage points from January 2020. A major revision over a very short period of time. This makes the Great Lockdown the worst recession since the Great Depression and far worse than the global financial crisis.”
Even if the pandemic will be under control at the end of the year, the IMF only foresees a partial recovery in 2021.
Gopinath said, “assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses and system wide financial strength, we project global growth in 2021 to rebound to 5.8 percent. Now, this recovery in 2021 is only partial, as the level of economic activity is projected to remain below the level we had projected for 2021 before the virus hit.”
A full economic recovery can only follow when the health crisis is being managed and controlled successfully. Advanced economies must ensure equal access to new therapies and vaccines for low-income countries, Gopinath said.
She noted, “in a sense, there is no tradeoff between saving lives and saving livelihoods. Countries should continue to generously support their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies. A global effort must be sure that when therapies and vaccines are developed, both rich and poor nations alike have immediate access.”
Gopinath emphasized that massive fiscal stimulus is important during this time of crisis and was hopeful that debt levels would go down again after the economic recovery.
She said, “as long as interest rates remain very low as we see and we get the recovery that we are projecting, then the combination should help in bringing down debt levels slowly over time. There will be some countries in the world that would require help, external aid, debt restructurings, but we’ll have to see what that looks like once we come out of this pandemic.”