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In the shadow of the COVID-19 pandemic and its continuing impact, the global economy could experience a recession “somewhat less severe, although still deep” until 2020, as projected by the International Monetary Fund (IMF) in its latest global economic outlook.
The revision is driven by better-than-expected second-quarter gross domestic product (GDP) in large advanced economies, the IMF reported Monday, also pointing to stronger-than-expected growth in China and signs of a faster recovery in China. the third trimester.
“The results would have been much weaker had it not been for significant, rapid and unprecedented fiscal, monetary and regulatory responses that maintained disposable income for households, protected cash flow for businesses and supported the provision of credit,” Gita Gopinath, IMF Economic Counselor and Research Director, said in a foreword to the report.
“Taken together, these actions have so far prevented a repeat of the 2008-09 financial catastrophe,” he added.
Global growth forecast at -4.4%
According to the report, with the spread of the COVID-19 pandemic, many countries have slowed the reopening and some are reinstating partial closures. While the recovery in China has been faster than expected, the long rise of the world economy back to pre-pandemic levels remains fraught with hurdles.
Global growth is now projected at -4.4 percent in 2020, a less severe contraction than was forecast in the IMF’s June update.
In 2021, global growth is projected at 5.2%, slightly lower than in the June update, reflecting the more moderate recession projected for 2020.
Following the contraction in 2020 and the recovery in 2021, the level of world GDP in 2021 is expected to be a “modest” 0.6 percent higher than in 2019, the report said, adding that growth projections imply wide gaps. negative production and an increase in employment. losses this year and in 2021, in both advanced and emerging economies.
After 2021, global growth is expected to gradually slow to around 3.5 percent over the medium term, implying limited progress towards the projected 2020-25 growth projected before the pandemic.
‘Unusually large’ level of uncertainty
The report notes that the uncertainty around the baseline projection is “unusually large.”
The forecast is based on economic and public health factors that are inherently difficult to predict, he adds, pointing out the unclear trajectory of the pandemic, the necessary public health response and how countries react, especially in sectors of the economy. that require intensive contacts.
Sources of uncertainty also include the extent of the global spillover effects of weak demand, weaker tourism, and lower remittances; and uncertainty around the damage to supply potential, which will depend on the level of pandemic impact, the size and the effectiveness of the policy response.
Considering the severity of the recession and the possible withdrawal of emergency support measures and social protections in some countries, increased bankruptcies could exacerbate job and income losses. Also, fears about financial recovery could trigger a sudden halt in new lending to vulnerable economies.
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