Daily Management Review

Pandemic Induced Global Recession Worse Than Previously Thought, Says IMF


Pandemic Induced Global Recession Worse Than Previously Thought, Says IMF
The novel coronavirus pandemic’s hit to the global economy is resulting a much steeper recession and a much slower recovery than was initially expected by the International Monetary Fund. This forced the IMF to slash its global economic forecasts for 2020 further on Wednesday.
The IMF expects a contraction of 4.9 per cent in global GDP for the current year which was a downward revision of the organization’s prior estimates about the global economy as announced in April when it had forecast a contract of 3 per cent for the global economy for the current year.
The IMF had earlier predicted that the pandemic induced global recession would also be the deepest since the Great Depression of the 1930s.
According to the IMF, an "unprecedented decline in global activity" is being caused by the pandemic. The pandemic has resulted in a significant drop in consumer spending and companies have cut down on investments along with depressed movement of people outside of their homes which has caused a "catastrophic" hit to the global economy, the global financial organization said.
"The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast," the IMF said in its report.
Compared to the forecasts of the global economy by the World Bank and the Organization for Economic Cooperation and Development, the IMF’s outlook is slightly better. The other two organizations, the World Bank and the OECD, had recently predicted 5.2 per cent and 6 per cent shrinking of the global economy respectively for the current year.
However, warning of a "higher-than-usual degree of uncertainty" around its forecast was attached to its forecast by the IMF as the latest prediction was based on a number of assumptions that included stable financial conditions.
The IMF also pointed out that it was difficult to estimate the course that the pandemic will take and the measures to keep it in check as well as the impact on spending because of voluntary social distancing, the effects and outcomes of new workplace safety measures and continued high levels of unemployment.
The IMF said that there will be "substantial differences across individual economies" even though its expects every region to face a recession in 2020.
For example, the IMF predicts that the process of recovery from the pandemic will be faster for China and expects the second largest economy of the world to grow at 1 per cent partly because of government support to fight the economic fallout of the pandemic. On the other hand, the IMF expects a 4.5 per cent shrinking of the Indian economy because of a longer lockdown and slower-than-expected recovery.
IMF expects an 8 per cent shrinking in the US economy while there will be 10.2 per cent decline in output across the 19 countries that use the euro, the IMF predicted.
Latin American countries will also be hit hard because they are still struggling to control the pandemic. The IMF expects a 9.1 per cent contraction in the Brazilian economy while it is expected that the Mexican economy would contract by 10.5 per cent.