New York — The International Monetary Fund (IMF) predicted the “Great Lockdown” recession would be the steepest in almost a century and warned the world economy’s contraction and recovery would be worse than expected if the coronavirus lingers or returns.
In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated on Tuesday that global GDP will shrink 3% in 2020.
That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression that lasted from 1929 to 1939. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis.
While the fund expected growth of 5.8% in 2021, which would be the strongest in records dating back to 1980, it cautioned risks lay to the downside. Much depends on the longevity of the pandemic, its effect on activity and related stresses in financial and commodity markets, it said.
Even if the IMF’s forecast proves accurate, it said output in both advanced and emerging markets would undershoot their pre-virus trends through 2021, seemingly dashing any lingering hopes of a V-shaped economic rebound from the health emergency.
In a further sign of pessimism, the IMF sketched out three alternative scenarios in which the virus lasted longer than expected, returned in 2021 or both. A lengthier pandemic would wipe 3% off GDP in 2020 compared to the baseline, while protraction plus a resumption next year would mean 8% less output than projected in 2021, it said.
“This crisis is like no other,” Gita Gopinath, the IMF’s chief economist, wrote in a foreword to its semi-annual report. “Like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”
As with the virus’s reach, the economic hit is sweeping. In the US, GDP is expected to contract 5.9%, compared with a 2% expansion in its last global outlook in January. It may grow 4.7% in 2021, the IMF said. The eurozone will probably shrink 7.5% in 2020 and expand 4.7% in 2021, it said.
“Many countries face a multilayered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital-flow reversals and a collapse in commodity prices,” the IMF said. “Risks of a worse outcome predominate.”
The grim projections are a stark reversal from the IMF’s outlook less than two months ago. On February 19, the fund told G20 finance chiefs that “global growth appears to be bottoming out”. Three days later, MD Kristalina Georgieva predicted the virus would likely cut just 0.1 percentage point from the fund’s global growth forecast for 2020, though she acknowledged “more dire scenarios” were being studied.
The fund sees advanced economies shrinking the most, contracting 6.1%. Emerging-market and developing economies will see a 1% drop. Growth in China and India will decelerate but their economies will still manage to expand 1.2% and 1.9% respectively, the fund said.
The IMF’s baseline scenario assumes that the pandemic fades in the second half of 2020 and that containment measures can be gradually wound down.
Global trade volume in goods and services will probably tumble 11% this year, the fund said.
Growth in consumer prices in advanced economies may average 0.5% this year, accelerating to 1.5% in 2021, it said. The jobless rate in the US, which was at a half-century low before the pandemic, may swell to 10.4% in 2020, the IMF said.
Most central banks about the world have cut interest rates to near or below zero to blunt the effect of the coronavirus, with the Federal Reserve launching an unprecedented range of emergency programmes to support as much as $2.3-trillion in loans. Fiscal stimulus packages have varied more. The US is providing about 10% of GDP in support and Germany about 4.5%, while Japan’s programme is worth about 20% of GDP, according to Bloomberg Economics.
The IMF said that fiscal measures will need to increase if stoppages to economic activity persist, or if the rise in activity once restrictions are lifted is too weak. Economies with financing constraints may also require external support, the fund said. Georgieva had repeatedly pledged to use the IMF’s $1-trillion in loan capacity to help its members.
The IMF and World Bank are holding their spring meetings via video conference for the first time ever this week. Their normal in-person meetings typically draw thousands of delegates, observers and journalists from 189 member countries. The programme has been pared down to mostly media briefings and private meetings, skipping the typical seminars and public discussions.
Bloomberg
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