July 13, 2020
AliExpress WW
"A Crisis Like No Other": IMF Sees Even Deeper Global Recession, Warns Markets Disconnected From Reality

“A Crisis Like No Other”: IMF Sees Even Deeper Global Recession, Warns Markets Disconnected From Reality

AliExpress WW

In a recent IMF revision of economic forecasts this morning, the fund warns that the world is facing a “crisis like no other,” and now expects global growth to decline by -4.9% in 2020, by 1, 9% below the forecast for April 2020 -3.0%.

AliExpress WW

The COVID-19 pandemic had a more negative impact on activity in the first half of 2020 than expected, the IMF said, adding that recovery is projected to be more gradual than previously projected. In 2021, global growth is projected at 5.4% compared with 5.8%, and this figure will also be revised downward, while China’s expected growth of 1.0% (compared with 1.2%) will become big wildcard.

As shown in the table below, the IMF made the following changes in GDP for 2020:

  • United States -8.0% compared to -6.1%
  • China 1.0%, compared with -1.2%
  • Eurozone -10.2%, compared with -7.5%
  • India: -4.5% compared to + 1.9%
  • Japan -5.8%, compared with -5.2%
  • Canada -8.4% compared to -6.2%
  • Latin America: -9.4% compared to -5.2%

Summarized:

India suffered the biggest downward revision of GDP from April forecasts, expected reduction of 4.5% compared with the previous forecast expansion of 1.9%, Latin America has been affected by the virus, in part due to less developed health systems; the two largest economies of Brazil and Mexico are projected to decline by 9.1% and 10.5%, respectively.

“With the relentless spread of the pandemic, the prospects for long-term negative effects on livelihoods, employment and inequality have become even more frightening,” the global emergency lender said in his statement. update to world economic outlook,
The IMF acknowledged that, as in WEO forecasts in April 2020, the degree of uncertainty regarding this forecast is higher than usual, while the basic forecast is based on key assumptions about the consequences of the pandemic.

In countries with declining levels of infection, the slower recovery path in the updated forecast reflects:

  • sustainable social distance in the second half of 2020;
  • greater scarring (damage to the potential offer) from a stronger than expected impact on activity during the block in the first and second quarters of 2020;
  • a productivity hit as surviving enterprises build on the necessary safety and hygiene measures in the workplace.

The fund lowered its expectations for consumption in most countries due to a more significant than expected disruption in domestic activity, demand shocks due to social fragmentation and increased precautionary savings.

For countries struggling to control the level of infection, longer blocking will cause additional damage to activity. Moreover, the forecast assumes that the financial conditions that have improved since the release of WEO in April 2020 will generally remain at the current level. Obviously, alternatives to baseline outcomes are possible, and not just because of the development of a pandemic. The degree of recent recovery in financial market sentiment does not appear to be related to changes in the underlying economic outlook, as discussed in the updated Global Financial Stability Report (GFSR) for June 2020, which increases the likelihood that financial conditions may tighten more. than expected in the base case.

Overall, GDP in 2021 will be 6.5% lower than projected before COVID-19 in January 2020. The negative impact on low-income households is particularly acute, jeopardizing the significant progress made in reducing extreme poverty in the world since the 1990s.

More importantly, the IMF also warned that a recovery in “The sentiment in the financial markets does not appear to be related to changes in the main economic prospects, which increases the likelihood that financial conditions may become more stringent than anticipated in the baseline scenario.”“.

Returning to the surprisingly gloomy forecast, the IMF stated that the risks of decline remain significant, because “outbreaks can recur in places that appear to have passed the peak infection, which requires the re-introduction of at least some containment measures. A longer decline in activity may lead to further scarring, including from a wider closure of enterprises, since surviving firms are hesitant to hire job seekers after long periods of unemployment, and the unemployed completely leave the workforce. “

In addition, financial conditions may tighten again, as in January-March, exposing vulnerabilities among borrowers. “This could lead to some countries facing a debt crisis and slowing activity.” Moreover, a significant political response after the initial sudden cessation of activity may ultimately be prematurely withdrawn or improperly selected due to design and implementation problems, which will lead to improper distribution and destruction of productive economic relations.

The IMF has warned of a fall in global trade in goods and services, which is expected to fall by 11.9% in 2020.

Finally, the IMF warned that the impact of the pandemic could significantly increase inequality, with more than 90% of emerging and developing countries forecasting a decline in per capita income.

Oddly enough, she had nothing to say about the largest source of global inequality over the past decade: central banks, which over the past ten years have invested more than $ 30 trillion in liquidity, and whose actions guarantee that the next crash could well be the last.

* * *

Looking to the future, the IMF presents two alternative scenarios: in one – the second outbreak of the virus in early 2021, while disruptions in domestic economic activity are about half as much as anticipated this year. The scenario suggests that emerging markets suffer more damage than advanced economies, given the more limited space to support income. In this case, the output will be 4.9% below the baseline in 2021 and will remain below the baseline in 2022. In the second scenario, with faster than expected recovery, global output will be about half a percentage point better than the baseline. this year and 3% above the baseline in 2021.

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