Amid grim outlook, IMF says things could get better, or worse

Employees work on the automobile assembly line during the outbreak of the coronavirus disease at Kawasaki factory of Mitsubishi Fuso Truck and Bus Corp, owned by Germany-based Daimler AG, in Kawasaki, south of Tokyo, Japan May 18, 2020. — Reuters pic
Employees work on the automobile assembly line during the outbreak of the coronavirus disease at Kawasaki factory of Mitsubishi Fuso Truck and Bus Corp, owned by Germany-based Daimler AG, in Kawasaki, south of Tokyo, Japan May 18, 2020. — Reuters pic

WASHINGTON, June 24 — Coronavirus shutdowns have made the IMF’s global outlook grim this year, but the fund said today if things go right, recovery could come sooner — though the situation could also become worse.

The latest forecasts in the IMF’s World Economic Outlook project a global contraction of 4.9 per cent, followed by a recovery of 5.4 per cent in 2021.

But the report, which acknowledged the high levels of uncertainty around the forecast, offered two alternative scenarios, one of which allows for the possibility the downturn might not be quite as terrible.

A second outbreak

One possibility is a second major outbreak takes place in early 2021, with new measures imposed to contain the spread that would be less disruptive than those used this year.

But even with additional fiscal support from governments, “the outbreak is assumed to cause further longer-lived damage to the supply side of economies (scarring) starting in 2022, as increased bankruptcies lead to capital destruction, temporary slowing in productivity growth and a temporary increase in trend unemployment.”

In that case, the global economy would see growth of just 0.5 per cent in 2021.

A faster recovery

The other possibility is that the recovery is faster than forecast, as effective containment of the virus leads to “less precautionary behavior by households and firms once the lockdowns are lifted.”

It also assumes governments continue the spending measures to support businesses and households with “no partial rollback in response to the improved outlook.”

That would mean a smaller downturn in 2020 of 4.5 per cent, and a faster recovery next year, with 8.4 per cent global growth. — AFP

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