With the coronavirus pandemic hitting many economies harder than previously projected, International Monetary Fund is looking at cutting global growth forecasts further.
Recent economic data for many countries was coming in below the fund’s already pessimistic forecast for a 3% contraction in 2020.
The IMF’s April projection for a 3% contraction the global economy would mark the steepest downturn since the Great Depression of the 1930s.
The fund forecast a partial rebound would follow in 2021, but warned that outcomes could be far worse, depending on the course of the pandemic.
Under the IMF’s baseline scenario, which called for effects of the pandemic to fade in the second half of the year, it predicted growth would rebound to 5.8% in 2021.
The US economy – the largest in the world – has been particularly hard hit by widespread shutdowns aimed at containing the spread of the virus.
The United States lost 20.5mn jobs in April with the unemployment rate at 14.7%, and some US officials have said that May jobs data could be worse.
The IMF typically revises its World Economic Outlook forecasts in July.
The worsening data was also likely to mean that emerging markets and developing economies would need more than $2.5tn in additional financing to grapple with the pandemic.
The IMF’s previous estimate of that amount — from both internal country resources and external financing — was “on the lower end,” managing director Kristalina Georgieva said recently.
She expected that number to be revised upward when the IMF released its new global economic forecasts.
Preliminary data for the first quarter of 2020 indicate that US GDP fell by 4.8% at an annual rate, the largest quarterly decline in GDP since the fourth quarter of 2008 during the global financial crisis when the American economy contracted by 8.4%.
Foreign investors have pulled an estimated $26bn out of developing Asian economies and more than $16bn out of India, increasing concerns of a major economic recession in Asia.
Some estimates also indicate that 29mn people in Latin America could fall into poverty, reversing a decade of efforts to narrow income inequality.
In Europe, over 30mn people in Germany, France, the UK, Spain, and Italy have applied for state support of their wages, while first quarter 2020 data indicate that the Eurozone economy contracted by 3.8% at an annual rate, the largest quarterly decline since the series started in 1995.
“Very likely we are going to come up with the update to our projections sometime in June, and at that point our expectation is that there would be a bit more bad news in terms of how we see 2020,” Georgieva said.
Clearly, the global economic situation remains highly fluid. Uncertainty about the length and depth of the health crisis-related economic effects is fuelling perceptions of risk and volatility in financial markets and corporate decision-making.
In addition, uncertainties concerning the pandemic and the effectiveness of public policies intended to curtail its spread are adding to market volatility.
Obviously, the pandemic crisis is challenging governments to implement monetary and fiscal policies that support credit markets and sustain economic activity.