The International Monetary Fund is downgrading global growth significantly in its latest update to the World Economic Outlook forecast to be released Wednesday (0900 ET / 1300 GMT June 24), IMF chief economist Gita Gopinath says.
The effects of COVID-19 are mounting, causing the IMF to shift its forecast down to -4.9 percent this year overall, before a predicted return to growth in 2021. That’s a sharp -1.9 dip from its last forecast in April says Gopinath.
“So compared to the April World Economic Outlook, we are projecting a deeper downturn in 2020 and a slower recovery in 2021. So growth for 2020 is projected at minus four-point-nine percent, which is one-point-nine percentage points below our April forecast,” said the Indian economist.
“Now, this reflects the fact that in the first half, economic outcomes came in somewhat worse than we had anticipated. And because there is no medical solution, we are expecting social distancing to persist for a longer time into the second half of this year,” she explained.
There is a higher-than-normal amount of uncertainty surrounding the forecast, the IMF says in the update.
“On the one hand, you could get positive news, you could have better news on vaccines and on treatments and greater policy support, and that can trigger a faster recovery. But on the other hand, there are important downside risks, too, which is that the virus could come back up. You could have financial tightening that could lead to debt distress. So there are both upsides and downsides. And overall, I would say this tremendous uncertainty,” said Gopinath.
The IMF has already provided emergency financial assistance to more than 70 countries since the pandemic hit, totaling over $250 billion of its total firepower of $1 trillion in assets.
There is evidence that efforts so far have had a positive impact in blunting the impact on global growth.
IMF Managing Director Kristalina Georgieva has urged countries to deploy whatever money they need to spend during the crisis, “but to keep the receipts” as transparency and good governance is essential to the recovery.
“So we are not out of the woods. Which means policymakers need to remain vigilant and agile, which is to adapt to how the situation evolves. Substantial monetary and fiscal support will need to be continued, but appropriate safeguards should be put in place. There should be proper fiscal accounting, fiscal transparency. And when it comes to monitory policy, central bank independence has to be maintained,” Gopinath said.
The full report will be available under embargo at the IMF Press Center Tuesday and released to the public Wednesday on IMF.org/WEO.