World Economy - A Crisis Like No Other says IMF
Recovery in world economy would be uncertain and gradual
Global
growth is projected at –4.9 percent in 2020, 1.9 percentage points below the
April 2020 World Economic Outlook (WEO) forecast. 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. In
2021 global growth is projected at 5.4 percent. Overall, this would leave 2021
GDP some 6½ percentage points lower than in the pre-COVID-19 projections of
January 2020. The adverse impact on low-income households is particularly
acute, imperiling the significant progress made in reducing extreme poverty in
the world since the 1990s.
As with the
April 2020 WEO projections, there is a higher-than-usual degree of uncertainty
around this forecast. The baseline projection rests on key assumptions about
the fallout from the pandemic. In economies with declining infection rates, the
slower recovery path in the updated forecast reflects persistent social
distancing into the second half of 2020; greater scarring (damage to supply
potential) from the larger-than-anticipated hit to activity during the lockdown
in the first and second quarters of 2020; and a hit to productivity as
surviving businesses ramp up necessary workplace safety and hygiene practices.
For economies struggling to control infection rates, a lengthier lockdown will
inflict an additional toll on activity. Moreover, the forecast assumes that
financial conditions—which have eased following the release of the April 2020
WEO—will remain broadly at current levels. Alternative outcomes to those in the
baseline are clearly possible, and not just because of how the pandemic is
evolving. The extent of the recent rebound in financial market sentiment
appears disconnected from shifts in underlying economic prospects—as the June
2020 Global Financial Stability Report (GFSR) Update discusses—raising the
possibility that financial conditions may tighten more than assumed in the
baseline.
All
countries—including those that have seemingly passed peaks in infections—should
ensure that their health care systems are adequately resourced. The
international community must vastly step up its support of national
initiatives, including through financial assistance to countries with limited
health care capacity and channeling of funding for vaccine production as trials
advance, so that adequate, affordable doses are quickly available to all
countries. Where lockdowns are required, economic policy should continue to
cushion household income losses with sizable, well-targeted measures as well as
provide support to firms suffering the consequences of mandated restrictions on
activity. Where economies are reopening, targeted support should be gradually
unwound as the recovery gets underway, and policies should provide stimulus to
lift demand and ease and incentivize the reallocation of resources away from
sectors likely to emerge persistently smaller after the pandemic.
Strong
multilateral cooperation remains essential on multiple fronts. Liquidity
assistance is urgently needed for countries confronting health crises and
external funding shortfalls, including through debt relief and financing
through the global financial safety net. Beyond the pandemic, policymakers must
cooperate to resolve trade and technology tensions that endanger an eventual
recovery from the COVID-19 crisis. Furthermore, building on the record drop in
greenhouse gas emissions during the pandemic, policymakers should both
implement their climate change mitigation commitments and work together to
scale up equitably designed carbon taxation or equivalent schemes. The global
community must act now to avoid a repeat of this catastrophe by building global
stockpiles of essential supplies and protective equipment, funding research and
supporting public health systems, and putting in place effective modalities for
delivering relief to the neediest.
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