The International Monetary Fund warned that the world economy still faces an uneven recovery until the coronavirus is tamed even as it offered a less-dire view of this year’s recession following massive stimulus from central banks and governments.
The fund now forecasts world gross domestic product to shrink 4.4% this year, compared with the 5.2% drop seen in June, according to the latest World Economic Outlook released Tuesday. For 2021, the IMF sees growth of 5.2%, down from 5.4%. The report includes revisions to June’s forecasts and other historical data to reflect updated country weightings.
The contraction would still be the deepest since the Great Depression, with Covid-19 having killed more than 1 million people and shut down large swaths of business. The report sets the tone for this week’s annual meetings of the IMF and World Bank -- being held virtually, like April’s spring meetings, due to the pandemic -- as global policy makers discuss how to avert a wave of debt defaults in poorer nations resulting from the virus’s impact.
“Recovery is not assured while the pandemic continues to spread,” chief economist Gita Gopinath wrote in the report. “Economies everywhere face difficult paths back to pre-pandemic activity levels.”
Extreme poverty is set to rise for the first time in more than two decades, with inequality poised to increase because the crisis has disproportionately affected women, the informally employed, and less-educated workers, the IMF said.
“The persistent output losses imply a major setback to living standards relative to what was expected before the pandemic,” and most economies will experience lasting damage to supply potential and scars from the deep recession, the report said.
The impact of the downturn has been cushioned by policy initiatives, including a European pandemic-recovery package, and large-scale central bank asset purchases, the fund said. Such unprecedented support helped ease financial conditions since June in advanced economies and in most emerging and developing economies, the fund said.
Policy makers must avoid prematurely withdrawing support in order to avoid setbacks, Gopinath said. The forecasts assume monetary policy is maintained at current settings through 2025, helping to alleviate debt service burdens for many countries. Governments globally have implemented $6 trillion in direct tax and spending measures, according to the IMF.
The fund’s forecast is based on the expectation that social distancing will continue into next year but gradually fade over time as vaccine coverage expands. It also is premised upon local transmission of the virus being brought to low levels everywhere by the end of 2022.
The upward revision in the IMF’s 2020 growth forecast reflects in particular better-than-projected second-quarter growth in the U.S. and the euro area, a stronger-than-anticipated return to growth in China and signs of a more rapid recovery in the third quarter.