Coronavirus to cut global economy by 3 pct in 2020: IMF
The coronavirus pandemic is pushing the global economy into a deep recession this year, cutting world output by 3 percent, the International Monetary Fund (IMF) said on Tuesday.
If the virus is contained and economies can begin operating again, 2021 should see a rebound of 5.8 percent, according to the IMF's latest World Economic Outlook.
"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," IMF chief economist Gita Gopinath said in a statement.
Under the Fund's best-case scenario, the world is likely to lose a cumulative 9 trillion U.S. dollars in output over two years - greater than the combined GDP of Germany and Japan, she added.
The IMF's forecasts assume that outbreaks of the novel coronavirus will peak in most countries during the second quarter and fade in the second half of the year, with business closures and other containment measures gradually unwound.
A longer pandemic that lasts through the third quarter could cause a further 3-percent contraction in 2020 and a slower recovery in 2021, due to the "scarring" effects of bankruptcies and prolonged unemployment. A second outbreak in 2021 that forces more shutdowns could cause a reduction of five to eight percentage points in the global gross domestic product baseline forecast for next year, keeping the world in recession for a second straight year.
"It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago," the IMF said in its report. "The Great Lockdown, as one might call it, is projected to shrink global growth dramatically."
The new forecasts provide a somber backdrop to the IMF and World Bank spring meetings, which are being held by video conference this week to avoid contributing to the spread of the virus. The meetings normally draw 10,000 people to a crowded two-block area of downtown Washington.
IMF Managing Director Kristalina Georgieva said last week that some 8 trillion U.S. dollars in fiscal stimulus being poured in by governments to stave off collapse was not likely to be enough. She is expected to argue this week for more debt relief for the poorest countries.
Advanced economies hit hard
The global economy contracted 0.7 percent in 2009 - previously the worst downturn since the 1930s - according to IMF data. In January, before the extent of the coronavirus outbreak both inside and outside China was known, the IMF had predicted that the global economy would grow 3.3 percent in 2020 as U.S.-China trade tensions were starting to ease, with 3.4 percent growth seen for 2021.
Advanced economies now suffering the worst outbreaks of the virus will bear the brunt of the plunge in activity. The U.S. economy will contract 5.9 percent in 2020, with a rebound to 4.7 percent growth in 2021 under the Fund’s best-case scenario.
Euro zone economies will contract by 7.5 percent in 2020, with hard-hit Italy seeing its GDP fall 9.1 percent and contractions of 8.0 percent in Spain, 7.0 percent in Germany and 7.2 percent in France, the Fund said. It predicted euro-area economies as a whole would match U.S. growth of 4.7 percent in 2021.
China, where the coronavirus outbreak peaked in the first quarter and business activity is resuming with the help of large fiscal and monetary stimulus, will maintain positive growth of 1.2 percent in 2020, a reduction from six percent growth in the IMF's January forecast. China's economy is forecast to grow 9.2 percent in 2021, the IMF said.
India's 2020 fiscal-year growth also is expected to stay in positive territory, but Latin American economies, which are still experiencing growing coronavirus outbreaks, will see a contraction of 5.2 percent.
The Fund called for central bank liquidity swap lines to be extended to more emerging market countries, which face a double problem of locked-down activity and tightening financial conditions caused by a massive outflow of funds to safe-haven assets such as U.S. Treasuries.
It said some countries may need to turn to temporary limits on capital outflows.
Debt relief for 25 poor countries
The IMF on Monday announced immediate debt relief for 25 poor countries to help them free up funds to fight the coronavirus pandemic.
"This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts," Georgieva said in a statement.
The IMF board approved the debt relief for the countries, nearly all in Africa, but also Afghanistan, Yemen, Nepal and Haiti.
The fund together with the World Bank have called for rich nations to stop collecting debt payments from poor countries from May 1 through June 2021.
The debt relief will be funded by the IMF's Catastrophe Containment and Relief Trust (CCRT), which was first set up to combat the West Africa Ebola outbreak in 2015 and has been repurposed to help countries fend off COVID-19.