The International Monetary Fund emphasized on Wednesday that the global economy faces an even deeper downturn than previously projected, and that the pandemic “continues to sow uncertainty” as businesses around the world struggle to recover.
Even at this stage, it is increasingly evident that the recovery will be uneven and protracted “as cases continue to surge and consumers remain wary of resuming normal activity,” the New York Times reported.
In an update to its World Economic Outlook, the IMF said it expects the global economy to shrink 4.9% this year -- a sharper contraction than the 3% predicted in April.
The fund noted that, even as businesses began to reopen, voluntary social distancing and enhanced workplace safety standards were weighing on economic activity and that the “scarring” of the labor force from job cuts and business closures will slow global recovery. It now projects 5.4% global growth in 2021, far below its pre-pandemic projections.
Overall, the IMF expects that the cumulative loss of total output for the global economy this year and next year will top $12 trillion.
NYT says the IMF forecast is “more grim” than global projections outlined earlier this month by the Organization for Economic Cooperation and Development. And its U.S. forecast for 2020 is less optimistic than that the Congressional Budget Office and the Federal Reserve have projected. The IMF now projects that the U.S. economy will shrink 8% this year before expanding 4.5% next year.
The Fed in June projected a particularly sharp U.S. economic hit in 2020 with output contracting 6.5% at the end of this year compared to the final quarter of 2019, before rebounding by 5% in 2021. A May report from the Congressional Budget Office forecast a 5.6% contraction in the United States this year.
Charles Evans, president of the Federal Reserve Bank of Chicago, said on Wednesday that he expects a “broad recovery will take some time” in the United States, adding that “the future is more uncertain now than at any other time” in his professional career.
“My forecast assumes growth is held back by responses to intermittent localized outbreaks -- which might be made worse by the faster-than-expected re-openings,” Evans said. “Usually, we are able to look to the past for guidance on what is in store for the future. But in this situation, there is simply no relevant benchmark.”
The pandemic has not spared advanced or developing economies. Economies in the eurozone are projected to shrink 10.2% this year and expand 6% next year. In China, where the virus originated and which imposed draconian containment measures, the economy is expected to expand 1% this year and 8.2% in 2021.
Nonetheless, the Trump administration continues to suggest a more bullish outlook, the Times said. Larry Kudlow, the director of the National Economic Council, said Tuesday that he expected a V-shaped recovery, with a “sharp, steady economic uptick on the heels of recession.” Treasury Secretary Steven Mnuchin said that he could foresee the recession being over in the United States by the end of the year.
Prolonged economic pain means increased pressure on the administration and U.S. lawmakers to move forward with another round of stimulus measures. House Democrats want a $3 trillion economic support package but Republicans are increasingly wary of the long-term impacts of such spending. Treasury Secretary Steve Mnuchin said this week that future measures should be more targeted to help industries that have been hit hardest by the pandemic. President Trump has suggested he would be open to another round of stimulus checks, which could land in peoples’ bank accounts just ahead of the November election.
The IMF notes that, even in countries where infection rates are declining, major obstacles to the resumption of normal activity persist and that the pandemic has curtailed the flow of global trade, which the fund estimated had contracted 3.5% in the first quarter from a year earlier. That is in line with an estimate by the WTO, the Times said, which reported on Tuesday that global trade had fallen sharply in the first half of the year. On the brighter side, that trajectory did not seem quite as bad as the group had previously projected.
Trade in goods shrank 3% year on year in the first quarter while initial estimates indicate that it fell 18.5% in the second quarter, the steepest decline on record. But those declines could have been much worse, the organization said. Trade needs to grow only modestly for the rest of the year to meet the organization’s outlook for a 13% contraction in 2020, versus a more pessimistic potential decline of 32%.
Roberto Azevedo, the director general of the WTO called the development a “silver lining” but said governments need to be on guard and continue to stimulate the economy. “This is genuinely positive news, but we cannot afford to be complacent,” he said.
So, we will see. The virus certainly is continuing to be a threat on many fronts and economic recovery appears to be a greater challenge than once expected -- prospects producers should watch closely as the season progresses, Washington Insider believes.
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