The head of the International Monetary Fund (IMF) said Friday that previous estimates for the world economy to contract by three percent this year were too optimistic.
IMF Managing Director Kristalina Georgieva, during a video-linked conference in Florence, said that worsening indicators in some countries could weigh even further on this forecast.
“Incoming economic data for many countries is below our already pessimistic assessment for 2020,” Georgieva said. “And with no immediate medical solutions, more adverse scenarios might, unfortunately, materialize for some economies”.
In April, the IMF warned that the world economy would experience the worst downturn since the Great Depression.
IMF more negative on global economic projections https://t.co/nknkXFPt92 via @rapplerdotcom
— Maria Ressa (@mariaressa) May 9, 2020
Provided the pandemic were to lessen in intensity in the second half of 2020, however, global growth would rebound by 5.8 percent in 2021, representing a partial recovery, the IMF said last month.
“The unknown behavior of the virus is clouding the horizon for projections,” Georgieva said on Friday.
“Assuming that we will have treatments and vaccines by early 2021 at the latest, then we can expect a recovery,” she said, cautioning that testing and tracing would have to be on a much larger scale than current efforts.
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The coronavirus pandemic has killed more than 270,000 people worldwide, nearly 85 percent of them in Europe and the United States, since it appeared in China in December, according to AFP tracking.
IMF prediction about world economy
Earlier the IMF had predicted that the global economy is expected to shrink by 3.0% during 2020 in a stunning coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s.
The IMF, in its 2020 World Economic Outlook, predicted a partial rebound in 2021, with the world economy growing at a 5.8% rate, but said its forecasts were marked by “extreme uncertainty” and that outcomes could be far worse, depending on the course of the pandemic.
“This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” Gita Gopinath, the IMF’s chief economist, told a news conference via a video link.
Under the Fund’s best-case scenario, the world is likely to lose a cumulative $9 trillion in output over two years – greater than the combined gross domestic product of Germany and Japan, she added.
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The IMF’s forecasts assume that outbreaks of the novel coronavirus will peak in most countries during the second quarter and fade in the second half of the year, with business closures and other containment measures gradually unwound.
IMF more negative on global economic projections https://t.co/3Sim5WbjGB pic.twitter.com/sb7S2DViCK
— The Malaysian Insight (@msianinsight) May 9, 2020
A longer pandemic that lasts through the third quarter could cause a further 3% contraction in 2020 and a slower recovery in 2021, due to the “scarring” effects of bankruptcies and prolonged unemployment.
The second outbreak in 2021 that forces more shutdowns could cause a reduction of 5 to 8 percentage points in the global GDP baseline forecast for next year, keeping the world in recession for a second straight year.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” the IMF said in its report. “The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.”
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The new forecasts provide a somber backdrop to the IMF and World Bank spring meetings, which are being held by videoconference this week to avoid contributing to the spread of the virus.
The meetings, which normally draw 10,000 people to Washington, have been stripped to the bare minimum, with many interactions among central bankers, finance ministers, and other policymakers not taking place at a critical time.
AFP with additional input from GVS News Desk