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IMF predicts 'worse than anticipated' slowdown for global economy in 2020, record high public debt

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The International Monetary Fund (IMF) has predicted a deeper recession for the global economy for 2020 than previously expected.

IMF predicts 'worse than anticipated' slowdown for global economy in 2020, record high public debt
The International Monetary Fund (IMF) has predicted a deeper recession for the global economy for 2020 than previously expected.
As per its latest World Economic Outlook (WEO) report, global growth is projected to decline by -4.9 percent in 2020, 190 basis points below IMF’s April forecast. This decline in growth in 2020 is expected to be followed by a partial recovery, with the growth seen at 5.4 percent in 2021.
IMF had said that these projections imply a cumulative loss to the global economy over two years (2020–21) of over USD 12 trillion from this crisis.
“The downgrade from April reflects worse than anticipated outcomes in the first half of this year, an expectation of more persistent social distancing into the second half of this year, and damage to supply potential,” IMF’s Chief Economist Gita Gopinath said.
As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around the growth projections, IMF warned. The baseline projection rests on key assumptions about the fallout from the pandemic, as well as broadly stable financial conditions.
The synchronized nature of the downturn has amplified domestic disruptions around the globe, IMF said. As per its report, Global trade will suffer a deep contraction in 2020 of –11.9 percent, reflecting considerably weaker demand for goods and services, including tourism. Consistent with the gradual pickup in domestic demand next year, trade growth is expected to increase to 8 percent, IMF has said.
Advanced economies are seen contracting 8 percent in 2020, before growth picks up to 4.8 percent in 2021. However, IMF noted, the emerging market and developing economies (EMDEs) are going to be more hit by the pandemic, and are seen contracting by 3 percent in 2020, before rebounding with a 5.9 percent growth the next year.
On the positive side, IMF noted that the recovery is benefiting from exceptional policy support, particularly in advanced economies, and to a lesser extent in emerging market and developing economies that are more constrained by fiscal space. Global fiscal support now stands at over $10 trillion, as per IMF’s report. It also said that monetary policy has eased dramatically around the world through interest rate cuts, liquidity injections, and asset purchases, aiding some recovery.
The report warns that the current crisis will also generate medium-term challenges. “Public debt is projected to reach this year the highest level in recorded history in relation to GDP, in both advanced and emerging market and developing economies,” Gopinath said. This public debt is expected to exceed the post-World War II peak.
IMF has highlighted that all countries must ensure their healthcare systems are adequately resourced. Where lockdowns are needed, it said, economic policy must continue to cushion income losses, and where economies are reopening, more targeted support should be gradually unwound.
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