The International Monetary Fund or IMF reduces economic forecasts as the world suffers from the coronavirus crisis.
The organization warned that public finances may suffer heavily as governments try to fight the fallout from the health crisis.
The IMF predicts the economy will contract by 4.9% in global gross domestic product in 2020, lower than the 3% fall it predicted in April.
“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF reported Wednesday in its World Economic Outlook update.
IMF also reduced its GDP forecast for 2021, predicting a growth rate of 5.4% from the 5.8% forecast made in April.
According to the fund, the downward revisions were caused by social distancing measures that may remain during the second half of the year. These measures have affected productivity and supply chains. IMF expects that longer lockdowns will hit economic activity even more.
The IMF warned that the economic predictions still face unprecedented uncertainty. Meanwhile, economic activity will be shaped by factors such as global supply chains, the length of the pandemic, social distancing, and new labor market dynamics.
Labor market
“The steep decline in activity comes with a catastrophic hit to the global labor market,” the IMF stated on Wednesday. They said that the global decline in work hours in the second quarter of the year may lead to a loss of over 300 million full-time jobs.
“The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” the IMF said.
Economic contraction in the US
Meanwhile, the IMF sees a contraction of 5.9% the US in April and by 8% this year. The fund reduced its forecasts for the euro zone, with the economy now falling by 10.2% in 2020.
In addition, Brazil, Mexico and South Africa may contract by 9.1%, 10.5% and 8%, respectively.
Governments worldwide will be issuing massive fiscal packages and new borrowing to cushion the economic impact of the coronavirus pandemic.
“The steep contraction in economic activity and fiscal revenues, along with the sizable fiscal support, has further stretched public finances, with global public debt projected to reach more than 100% of GDP this year,” the fund said.
Global public debt will experience an all-time high in 2020 and 2021 at 101.5% of GDP and 103.2% of GDP, respectively, under the IMF’s base case. Moreover, the average overall fiscal deficit may increase by 13.9% of GDP this year, 10 percentage points higher than in 2019.
Poverty
The economic damages brought by the coronavirus pandemic can push half a billion people into poverty, according to the new report released by Oxfam.
“I think if you compare that to the global financial crisis … the response has been just that much speedier and the scale of it has been that much bigger,” she said, noting that economies around the world have announced about $8 trillion worth of fiscael stimulus.
“The concern we have is more about developing and emerging economies that have less of a fiscal space, have to deal with external account problems, and I think they’re in a tougher spot,” she said.
