News Lockdown pain causes IMF to predict deeper global recession

Lockdown pain causes IMF to predict deeper global recession

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The coronavirus pandemic is causing wider and deeper damage to economic activity than first thought, the International Monetary Fund says, prompting the institution to slash its 2020 global output forecasts further.

The IMF on Wednesday said it now expects global output to shrink by 4.9 per cent, compared with a 3.0 per cent contraction predicted in April (in video, above), when it used data available as widespread business lockdowns were just getting into full swing.

A recovery in 2021 also will be weaker, with global growth forecast at 5.4 per cent for the year compared to 5.8 per cent in the April forecast.

The IMF said, however, that a major new outbreak in 2021 could shrink the year’s growth to a barely perceptible 0.5 per cent.

Although many economies have begun to reopen, the IMF said the unique characteristics of lockdowns and social distancing have conspired to hit both investment and consumption.

“Thus, there is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns,” the IMF said in an update of its World Economic Outlook forecast.

Advanced economies have been particularly hard-hit, with US output now expected to shrink 8.0 per cent and the euro zone 10.2 per cent in 2020, both more than 2 percentage points worse than the April forecast, the IMF said.

Latin American economies, where infections are still rising, saw some of the largest downgrades, with Brazil’s economy now expected to shrink 9.1 per cent and Mexico’s 10.5 per cent and Argentina’s 9.9 per cent in 2020.

China, where businesses started reopening in April and new infections have been minimal, is the only major economy now expected to show positive growth in 2020, now forecast at 1.0 per cent compared to 1.2 per cent in the April forecast.

The IMF said that more policy actions from governments and central banks would be needed to support jobs and businesses to limit further damage and set the stage for recovery.