Despite some signs of recovery, the global economy faces continued challenges, including the possibility of a second wave of COVID-19, and governments should keep their support programs in place, IMF chief Kristalina Georgieva said Thursday.
Activity “has started to gradually strengthen… But we are not out of the woods yet,” Georgieva said in a message to G20 finance ministers ahead of their weekend meeting in Saudi Arabia.
IMF chief signals worry for global economy
The Washington-based crisis lender late last month downgraded its growth forecasts, and now expects global GDP to fall by 4.9 percent this year due to the deeper contraction during lockdowns than previously anticipated, and only a “tepid recovery is expected for next year.”
IMF says the governments should keep their support programs in place as the global economy faces continued challenges – including the possibility of a second wave of COVID-19https://t.co/buJUC43bNx— WION (@WIONews) July 16, 2020
Georgieva said $11 trillion in fiscal measures by G20 members and other countries, as well as massive central bank liquidity injections, have put a floor under the global economy.
The $11 trillion in stimulus provided by the G20 nations helped to prevent a worse outcome, but “these safety nets must be maintained as needed and, in some cases, expanded,” Georgieva urged in a blog post.
She highlighted measures including paid sick leave for low-income families and access to health care and unemployment insurance.
But the recovery faces risks, she said, including the possibility of “a second major global wave of the disease could lead to further disruptions.”
While she acknowledged that the “substantial and rising debt levels are a serious concern,” Georgieva said, “At this stage in the crisis, however, the costs of premature withdrawal are greater than continued support where it is needed.”
IMF Chief says global economy in a new phase amid reopenings
Many countries have moved to reopen, so, “Clearly, we have entered a new phase of the crisis,” she said in a blog post, adding it will require “further policy agility and action to secure a durable and shared recovery.”
Many jobs that have been lost amid the pandemic may never come back, so workers will need support and training to move into new sectors.
“The bottom line is that the pandemic is likely to increase poverty and inequality,” she said but noted that policymakers have “a once-in-a-century shot” at building a better, greener and more equitable world.
Some countries lost more jobs in March and April than had been created since the end of the 2008 global financial crisis, and many of those jobs will never return, Georgieva said.
The fiscal costs of the support extended to people & businesses across the #G20 are substantial and debt levels are a serious concern. However, at this stage, a premature withdrawal is a greater risk to the recovery than continued support where needed. https://t.co/vMwR6dOaku pic.twitter.com/etrUMkzLy5— Kristalina Georgieva (@KGeorgieva) July 16, 2020
Job losses, bankruptcies and industry restructuring could pose significant challenges for the financial sector, including credit losses to financial institutions and investors, she said.
To ensure stability, continued coordination across central banks and support from international financial institutions was essential, she said. Regulation should also support the flexible use of capital to keep credit lines open for businesses.
IMF warns against cutting spending
Earlier, as governments rushed out funding to prevent an economic collapse amid the coronavirus pandemic, global public debt swelled to the highest in history, but the IMF warned that cutting back too soon could undermine the recovery.
Continuing to provide the support as the economic slowdown drags on will be “paramount,” the International Monetary Fund’s fiscal policy chief Vitor Gaspar told AFP in an interview.
“The risk of premature withdrawal of fiscal support is the dominant risk,” even more than rising debt levels, Gaspar said, noting that the economic recovery from the global financial crisis was slowed by that misstep.
As the health crisis spread and businesses were shuttered worldwide to contain the spread of COVID-19, governments provided “a massive fiscal response” of close to $11 trillion in just a few months to help support households and prevent bankruptcies, a “stronger and faster” response than in 2008-2010.
As a result, even amid record low interest rates, the debt figures are staggering.
Global public debt will reach “its highest level — as a percentage of GDP — ever recorded in history,” at over 100 percent of global GDP, Gaspar said.
GVS News Desk with additional input by other sources