The Strategist

IMF lowers estimates of global economic fall and recovery

06/25/2020 - 06:53

The global economic downturn will be more significant than expected in April, and will amount to 4.9% in 2020, while growth in 2021 will be weaker, follows from the updated forecast of the International Monetary Fund (IMF). The most significant adjustments of the estimates were made for the euro area and the USA, where the economies this year will decline by 8-12%.

This year, global GDP will decline by 4.9% (the decline was 2.1% during the 2009 crisis), and not by 3%, as expected in early April, follows from the updated IMF macro forecast. At the same time, in 2021, the growth will be only 5.4%, not 5.8%. As a result, the GDP of 2021 will be 6.5% lower than predicted in January, before the novel coronavirus pandemic. The new IMF baseline scenario does not imply a large-scale second wave of limitations due to the coronavirus, although repeated outbreaks are not excluded in individual countries.

At that, the recovery of financial markets does not meet fundamental economic indicators, the fund warned. The decline will be more pronounced in developed countries - minus 8% (6.1% in the April forecast) this year with a return to growth (by 4.8% versus 4.5%) in the next. In developing countries, GDP will decline by 3% (rather than 1%), and then grow by 5.9% (6.6% previously expected).

According to a new estimate by the IMF, the economy of the euro area countries will drop by a record 10.2% (7.5% as of the April estimate), but in a year it will return to growth by 6% (4.7%). Predictably, the deepest recession will be recorded in Italy and Spain - minus 12.8% (versus 9.1% and 8% respectively), in France - minus 12.5% (minus 7.2%), in Germany - minus 7.8% (minus 7%). The UK’s GDP will drop by 10.2% (minus 6.5%). Next year, the recovery will not be complete anywhere (the highest rates are projected in France - 7.3%). In Japan, the forecast is slightly adjusted - from 5.2% to 5.8% of the decline. In the United States, on the contrary, the estimate of the fall has deteriorated significantly - from 5.9% to 8%, and growth in 2021 may reach 4.5%, rather than 4.7%. The IMF estimates China's economic growth rate as minimal, but nonetheless positive: 1% with a sharp acceleration to 8.2% in 2021, and the adjustment is insignificant: by April, the main downturn in business activity in China has already ended. The score for Brazil sharply worsened, where the growth in the number of infected people accelerated - minus 9.1% this year with an increase of 3.6% in 2021 (it was minus 5.3% and 2.9%). Due to falling oil demand, the recession will also affect Saudi Arabia (minus 6.8% in 2020, plus 3.1% in 2021).