IMF says global economic collapse caused by coronavirus will be even worse than feared.
Emerging recovery likely to disappoint even if countries refuse to shut down during a resurgence of the coronavirus.
The International Monetary Fund on Wednesday painted a bleak portrait of the global economy, saying the coronavirus pandemic has caused more widespread damage than expected and will be followed by a sluggish recovery.
The global economy will shrink this year by 4.9 percent, worse than the 3 percent decline predicted in April, the IMF said.
No major economy is escaping the pandemic. The U.S. economy, the world’s largest, is expected to shrink this year by 8 percent. Countries that use the single European currency are headed for a decline of more than 10 percent while Japanese output will fall by 5.8 percent, the IMF said.
The Chinese economy, suffering the twin ravages of the pandemic and the trade war with the United States, is projected to eke out just a 1 percent gain — its worst performance in several decades.
“Maybe we can say the world has bottomed out, for now, and we’re in a recovery phase,” said Gita Gopinath, the IMF’s chief economist. “But still, the strength of the recovery is highly uncertain because there is no solution yet to the health crisis.”
By the end of next year, the pandemic will have cost the global economy $12.5 trillion in lost output, she added.
Current conditions are considerably more dire than the “unprecedented decline in global activity” that the fund projected two months ago. Since mid-April, economic data suggest “even deeper downturns than previously projected,” the fund said.
Fund officials blamed the darker forecast on the effects of social distancing; scarring to global production capacity from the lockdown of activity; and the productivity cost of new safety and hygiene rules. Some economies also are still struggling to control the coronavirus, the fund added without naming specific governments.
The forecast assumes countries will not reimpose comprehensive lockdowns even if the pandemic flares up again.
Government crisis-fighting efforts — including $11 trillion in spending and tax cuts — have kept the economic collapse from worsening, the fund said.
“Today’s IMF report is a warning to the world about what will happen if policymakers take their foot off the gas,” said Josh Lipsky, former IMF senior adviser who is now with the Atlantic Council. “ … The uncertain spread of the virus, risk of rising trade tensions and debt vulnerabilities in emerging economies all lead to the same conclusion — we have not done enough.”
Along with backing continued central bank support for low interest rates, the IMF is calling for wealthy nations to grant substantial debt relief to the world’s poorest countries. Earlier this month, the fund approved its 70th request for emergency financial aid, a $148 million loan for Guinea.