In its latest, unsurprising but painful prognostication, the IMF World Economic Outlook projected what it described as a ‘deep recession’, with global growth expected to fall to -4.4%.
Speaking ahead of the WEO forecast, IMF chief economist Gita Gopinath said:
“So we continue to project a deep recession in 2020 with global growth projected to be -4.4%. This is a small upgrade relative to our June numbers. We expect growth to rebound partially in 2021, coming back to 5.2 percent. However, with the exception of China, all advanced economies and emerging and developing economies, excluding China we are projecting output will remain below 2019 levels well into 2021. Therefore, we see that the recovery from this catastrophic collapse will likely be long and even highly uncertain,”
Gospinath argued that as world economies attempt to bounce back from COVID turmoil, there are challenges yet to be faced, but also a real opportunity for the situation to improve.
“There are broad risks to the upside and to the downside. On the upside, we could have positive development in terms of treatments and vaccines that could hasten the end of this health crisis. And we could also have more policy support that would help. But there are many downside risks. We could have worse news on the health front, and we could have greater financial turmoil at a time when debt is at the highest level in recorded history. And we have rising geopolitical tensions that could also derail the recovery,” she said from her home in Boston.
She added that the road to recovery will be a difficult one, but offered some suggestions on how policies could be designed to put economies back on a growth trajectory.
“First, it is essential that fiscal and monetary policy are not prematurely withdrawn as this crisis is far from over. Second, we need much greater international collaboration to end this health crisis by making sure that when once new treatments and vaccines are available, then it will be produced a sufficient scale to be available widely in all countries. And lastly, policies should be designed towards putting economies on a path towards more sustainable, inclusive and prosperous growth,”
Despite Gospinath’s cautiously optimistic outlook, the IMF red growth percentage will be another reason for global equities to feel the burn at the start of a challenging week.
Political tensions leave a bitter taste, with Brexit and the US Presidential Election creating opportunity for unknown downsides and poor sentiment between now and Christmas.
Pressure now mounts on policymakers, to decide whether or not lockdown part 2 is the correct path. The WHO are stressing that lockdown should be avoided if possible, and stated that the lockdown earlier in the year – as a result of diminished trade and travel – pushed around of quarter of a billion people back into poverty. All most of us can do is shelter our money, and hold on for what will likely be a harsh winter.