The IMF now sees an even deeper global recession as economies struggle to recover from COVID-19
- The International Monetary Fund on Wednesday again slashed its forecast for the global economy, saying it sees a deeper recession and longer recovery from the shock of the coronavirus pandemic.
- The fund now expects global gross domestic product to contract by 4.9% this year, down from its April forecast of a 3% contraction.
- It also cut its 2021 expectations to forecast growth of 5.4%, a step down from its previous estimate of 5.8% growth.
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The International Monetary Fund on Wednesday slashed its forecast for the global economy again, predicting a sharper recession and longer recovery from the coronavirus pandemic.
The IMF now sees global gross domestic product shrinking by 4.9% in 2020, a worse contraction than the 3% decline it forecast in April. The fund also foresees a slower-than-expected recovery — it cut its expectations for global growth in 2021 to 5.4% from 5.8%.
"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," the IMF said in its World Economy Outlook update.
The IMF said in April that the shock of the coronavirus pandemic and sweeping lockdowns to contain the spread of the disease would form the worst economic meltdown since the Great Depression. The IMF said its latest forecast reflected "greater scarring" from a larger-than-anticipated hit to activity and continued lower demand because of social-distancing guidelines.
"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," the IMF said.
Overall, the new forecast for 2021 GDP is more than 6 percentage points lower than the IMF's pre-pandemic projection in January, it said. The IMF said that, as in April, the latest forecast comes with a "higher-than-usual degree of uncertainty" because of the pandemic.
The IMF also said that it sees a severe hit to the global labor market and that the loss of work hours in the second quarter was likely equivalent to more than 300 million full-time jobs.
"The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home," the IMF said. "Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries."
There are some bright spots, according to the IMF. Financial conditions have eased in advanced and, to a lesser extent, emerging economies, forestalling worse near-term losses. Announced fiscal measures are now about $11 trillion globally, up from $8 trillion in April, the report said.
Still, significant downside risks to the forecast remain without a medical breakthrough such as a vaccine or a sharp rebound in business activity. More lockdowns, tightening financial conditions, prolonged unemployment, and wider firm closures could lead to more economic pain.
"This could tip some economies into debt crises and slow activity further," the IMF said.
The IMF sees advanced economies experiencing sharper declines in GDP, forecasting an 8% contraction in 2020 compared with a 3% decline in emerging economies.
US GDP is expected to decline by 8% in 2020 — worse than the IMF's April forecast of 5.9% — and grow by 4.5% in 2021, the report said. Euro-area GDP is expected to slump by 10.2% in 2020 and grow by 6% in 2021. The IMF forecast that China's economy would grow by 1% this year and 8.2% next year.