São Paulo – The International Monetary Fund (IMF)’s World Economic Outlook report came out this Tuesday (4) with a 3% global economy shrinkage forecast as a result of Covid-19 this year. Gross Domestic Product (GDP) is expected to contract by 2.8% in the Middle East and Central Asia, and 5.3% in Brazil.
A post-recession rebound is seen happening in 2021 with growth at 5% worldwide, 4% in the Middle East and Central Asia, and 2.9% in Brazil. In the Middle East’s Saudi Arabia, a 2.3% downturn is expected to be followed by 2.9% growth year-on-year in 2021, albeit against an exceptionally weak basis of comparison.
The IMF points out that “the world has changed dramatically” since the report was last updated, in January 2020. It labels the pandemic a “rare disaster” that has resulted in a tragically large number of deaths, “a crisis like no other” which implies substantial uncertainty about its impact on people’s lives and livelihoods.
The 3% downturn forecast is a 6.3 percentage point downshift over last January’s estimates. The IMF argues that the ongoing crisis is the worst recession since the Great Depression of the 1930s, and much worse than the 2008 financial crisis. The 5.8% global growth prediction in 2021 assumes that the pandemic will abate in 2020, and that effective policies will be put in place around the globe.
The IMF warns that recovery in 2021 will be only partial, and that economic activity levels will fall short of earlier projections. It sees global GDP losses of as much as USD 9 trillion in 2020 and 2021 – more than the size of Japan’s and Germany’s economies combined.
The Fund notes that “several economies entered this crisis in a vulnerable state with sluggish growth and high debt levels.” Developed countries are looking at 6.1% GDP shrinkage this year, before seeing 4.5% growth in 2021. Emerging markets should expect 1% shrinkage in 2020 followed by 6.6% growth next year. If China is taken out of the picture, these markets will see GDP contraction both in 2020 and 2021. Per capita income should go down in more than 170 different countries.
The IMF believes multilateral cooperation to be vital to ensure that the world doesn’t de-globalize. It said it is deploying its USD 1 trillion lending capacity to support vulnerable countries, including through rapid-disbursing emergency financing and debt service relief to its poorest member countries. “We face tremendous uncertainty around what comes next,” the report reads.
Translated by Gabriel Pomerancblum
