The global GDP forecast of the International Monetary Fund (IMF) turns slightly positive but warns of uncertain recovery.
For its global GDP forecast, IMF sees a 4.4% contraction in 2020, an upward change from an estimate of -4.9% made in June. The IMF’s prediction assumes that social distancing is being observed throughout the coronavirus pandemic into 2021 and that local transmission will drop everywhere by the end of 2022.
“We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” the IMF’s chief economist, Gita Gopinath, said in the latest World Economic Outlook.
She explained that the revision was driven by better-than-expected growth in advanced economies and China during the second quarter of the year and signs of a more rapid recovery in the third quarter.
However, the prediction warned that the coronavirus crisis is still not over. The IMF predicted “only limited progress” moving forward and slashed its gross domestic product growth expectations for 2021 to 5.2%, from an estimate of 5.4% recorded in June.
“While the global economy is coming back, the ascent will likely be long, uneven, and uncertain,” Gopinath said, while saying that “prospects have worsened significantly in some emerging market and developing economies.”
Experts see emerging markets and developing economies to contract by 3.3% this year, but in places like India, GDP is seen dropping by more than 10%.
Meanwhile, the United States economy may drop by 4.3% this year, but the economic contractions in the UK, France, Italy and Spain remain at 10%.
The recovery “is not assured while the pandemic continues to spread,” the IMF said in its latest economic analysis.
“With renewed upticks in COVID-19 infections in places that had reduced local transmission to low levels, re-openings have paused, and targeted shutdowns are being reinstated. Economies everywhere face difficult paths back to pre-pandemic activity levels,” the IMF said.
The IMF calls on governments to maintain some degree of accommodative policies to manage a bigger gap in income distribution, despite increasing levels of public debt.
National debt in advanced economies is seen to swell by 125% of GDP by the end of 2021 and to increase to about 65% of GDP in emerging markets during the same time.
However, the fund is not concerned about soaring debt as interest rates remain low and the economic recovery in 2021 should allow the repayment of some of the new debt.
“To ensure that debt remains on a sustainable path over the medium-term, governments may need to increase the progressivity of their taxes and ensure that corporations pay their fair share of taxes while eliminating wasteful spending,” the IMF said.
In addition, the IMF cited that trade friction, geopolitical tensions, natural disasters, changes to financing conditions, and further outbreaks continue to be the downside risks to its forecasts.
OECD's global GDP forecast
In September, the Organization for Economic Cooperation and Development (OECD) predicted that the global economy will contract by 4.5% in 2020.
While the global economy has surpassed expectations, it may still face “unprecedented” decline in output, the organization said.
The OECD pointed out that the 4.5% contraction this year suggests an upward revision from an estimate noted in June that presented a 6% decline in gross domestic product (GDP).
“The drop in global output in 2020 is smaller than expected, though still unprecedented in recent history,” the OECD said in its economic outlook.
Moreover, the organization predicts a 5% growth for the global economy in 2021. The outlook “remains exceptionally uncertain” because of the effects of the pandemic.
