Deep recession will lead to uneven recovery in next two years, says IMF

The International Monetary Fund is projecting a deep recession in 2020 due to the ongoing COVID-19 pandemic, which has offset unprepared global economies.



The latest World Economic Outlook projects a deep recession in 2020. Global growth is expected to be -4.4 percent, an improvement of over 0.8 percent compared to its June update. The upgrade is due to better than expected performance in the second quarter by the economy and expectations of a stronger recovery in the third quarter. But there are some emerging and developing economies that will not see a similar recovery.

The Outlook projects a rebound to 5.2 percent in 2021, -0.2 percentage points below the IMF’s June projection.

The report says China will likely be the only country where output is expected to exceed 2019 levels this year. The rest of the globe both in emerging and developed economies are expected to perform below the 2019 levels in 2021.

IMF: “Somewhat less severe, but still ‘deep recession’ predicted”

The IMF report further points out that countries that rely more on contact-intensive services and oil exporters face weaker recoveries compared to manufacturing-led economies. It slow says that income disparities across the globe are set to widen, maybe except China, due to the Pandemic-related income losses.

The global recession forecast for advanced economies for 2020 has been upgraded to -5.8 percent, followed by a rebound in growth to 3.9 percent in 2021. The report says, “For emerging market and developing countries (excluding China) we have a downgrade with growth projected to be – 5.7 percent in 2020 and then a recovery to 5 percent in 2021. With this, the cumulative growth in per capita income for emerging-market and developing economies (excluding China) over 2020-21 is projected to be lower than that for advanced economies.”

The World Economic Outlook projects a rebound to 5.2 percent in 2021, -0.2 percentage points below the IMF’s June projection. (Image Credit: IMF)

By 2021-end, the loss in output relative to the per pandemic projected level for emerging and developing economies excluding China is -8.1% much larger than the -4.7% for the advanced economies.

These losses due to the deep recession are bound to impact labor recovery, employment, human capital, manufacturing and investments.

The economy may start to revive from the coronavirus recession somewhat at 3.4% by mid-2021. The cumulative loss in output relative to the pre-pandemic time is calculated to grow from 11 trillion over 2020-21 to 28 trillion over 2020-25.

Such a loss is bound to bring down average living standards across all country groups, says the report.

Added to this loss is the resurgence of the virus and the growing uncertainty surrounding the vaccine trials and any medicinal breakthrough. Natural calamities, climate change and geopolitical pressures in vulnerable points across the world are adding to the grim outlook for the coming years.

Policy decisions and fiscal stimulus by central banks might save the day. The IMF said its research has found that lockdowns—despite the short-term economic costs—may lead to a faster economic recovery by containing the virus.

The global fiscal support of close to $12 trillion and extensive rate cuts, by central banks helped save livelihoods and prevented a financial catastrophe.

But more needs to be done.

“We estimate that if medical solutions can be made available faster and more widely relative to our baseline, it could lead to a cumulative increase in global income of almost $9 trillion by end 2025, raising incomes in all countries and reducing income divergence,” says the report.

The report advises to governments continue income support and infuse liquidity into the economy. Tax deferrals, moratoria on debt service, and equity-like injections should continue.

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Christy Gren
Christy Gren is an Industry Specialist Reporter at Industry Leaders Magazine; she enjoys writing about Unicorns, Silicon Valley, Startups, Business Leaders and Innovators. Her articles provide an insight about the Power Players in the field of Technology, Auto, Manufacturing, and F&B.

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