IMF predicts deeper global recession due to coronavirus pandemic

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

The IMF said it now expects global output to shrink by 4.9%, compared with a 3.0% contraction predicted in April, 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% for the year compared to 5.8% in the April forecast. The Fund said, however, that a major new outbreak in 2021 could shrink the year’s growth to a barely perceptible 0.5%.

Although many economies have begun to reopen, the Fund said that 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 U.S. output now expected to shrink 8.0% and the euro zone 10.2% 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% and Mexico’s 10.5% and Argentina’s 9.9% 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% compared to 1.2% 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.

Source: Reuters