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(CNN) – A strong comeback is needed in 2021 to help the world economy recover from the coronavirus pandemic. But the International Monetary Fund is lowering its forecasts for next year and warning of a slow and protracted recovery that will fuel poverty and hurt growth.
The IMF predicted on Tuesday that the world economy will contract 4.4 percent in 2020, a less severe contraction than it forecast in June. The improvement is driven by a stronger-than-expected rebound in the United States and Europe after the lockdowns were lifted, as well as by China’s return to growth.
However, the organization lowered its outlook for 2021. The IMF now sees a 5.2% increase in world output next year, down from 5.4% in its previous report. Last month, the Organization for Economic Cooperation and Development also lowered its forecast for 2021.
“The rise of this calamity is likely to be long, uneven and highly uncertain,” IMF chief economist Gita Gopinath said in a blog post.
Output in advanced economies, as well as emerging markets, with the exception of China, is projected to remain below 2019 levels next year, it said.
Looking ahead, the IMF offered a grim view of how the world economy might perform in the medium term, its first such forecast since the outbreak began.
Global growth is expected to slow to about 3.5% between 2022 and 2025, leaving the output of most economies below projected levels before the pandemic.
Big consequences
Slow growth over such a long period will have major consequences, the IMF warned.
One consequence will be the worsening of inequality and a “severe setback” for improvements in living standards, both in developed economies such as the United States and in emerging markets such as Mexico and Argentina.
Global extreme poverty is also expected to increase for the first time in more than two decades.
IMF predictions assume that social distancing will continue into next year before fading over time as people get vaccinated and improve Covid-19 treatments.
The US economy is expected to contract 4.3% in 2020 before expanding 3.1% in 2021. The IMF believes that the 19 countries that use the euro will experience a harder contraction but a more pronounced recovery, with a Production drop 8.3% this year before jumping 5.2% next year.
Spain, which has been hit hard by the virus and relies on service industries such as tourism, will be the worst of the advanced economies, with a 12.8% drop in production in 2020. Among emerging market economies, India, a key engine of the world’s growth economy before the pandemic – will be particularly damaged. The IMF believes its economy will contract 10.3% this year.
Britain, which has to face the additional challenge of Brexit, will see its economy shrink 9.8% this year.
Among the major economies, only China is expected to expand in 2020. The IMF believes that the country, which fought Covid-19 before the rest of the world and was able to quickly emerge from the lockdown due to strict containment measures, will grow by 1 , 9%.
The IMF stressed that the uncertainty surrounding its projections is “unusually large” given the lack of clarity about the health crisis and the economic response, especially as global debt levels rise.
If new government spending is announced, the outlook could improve, the IMF said. It is only taken into account in existing legislation and announcements. On the other hand, a stronger resurgence of the virus or slower-than-expected progress in vaccines could lead to a weaker economy.
This story was first published on CNN.com, “IMF cuts its global economic forecasts for 2021 and warns of a ‘long and uneven’ recovery.”
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