Global economic growth is projected at –4.9 percent in 2020, 1.9 percentage points below the forecast made in April 2020. This is captured in the recent World Economic Outlook (WEO) report released by the IMF.
“Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 WEO forecast. 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 recent forecast has downgraded some of the major components of aggregate demand; private consumption and firm investment.
The Fund states that Consumption growth, in particular, has been downgraded for most economies, reflecting the larger-than-anticipated disruption to domestic activity.
The IMF explained that the projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings. The Fund, however, indicated that Policy support will partially offset the deterioration in private domestic demand.
Investment on the other hand, the IMF said, is expected to be subdued as firms defer capital expenditures amid high uncertainty.
The projections have shown that in the baseline, global activity is expected to trough in the second quarter of 2020, recovering thereafter. Growth is expected to strengthened to 5.4 percent in 2021, with consumption and investment increasing gradually.
“In 2021, growth is projected to strengthen to 5.4 percent, 0.4 percentage point lower than the April forecast. Consumption is projected to strengthen gradually next year, and investment is also expected to firm up, but to remain subdued. Global GDP for the year 2021 as a whole is forecast to just exceed its 2019 level”.
The IMF further states that there appears to have been a deeper hit to activity in the first half of the year than anticipated, with signs of voluntary distancing even before lock-downs were imposed. This according to the Fund, suggests a more gradual recovery in the second half as fear of contagion is likely to continue.
Figure1 Growth forecast
Source: IMF.
Projections were also made for advanced, emerging markets, as well as developing and low-income developing economies. The IMF expects growth in advanced economies to decline more than the other group of countries.
“Growth in the advanced economy group is projected at –8.0 percent in 2020, 1.9 percentage points lower than in the April 2020 WEO forecast.
“Overall, growth in the group of emerging market and developing economies is forecast at –3.0 percent in 2020, 2 percentage points below the April 2020 WEO forecast.
“Growth among low-income developing countries is projected at –1.0 percent in 2020, some 1.4 percentage points below the April 2020 WEO forecast, although with differences across individual countries”, the IMF said.
Moving forward, the IMF recommended that;
“Where the pandemic remains acute and stringent lock-downs continue, fiscal policies should accommodate health care services to save lives and provide emergency lifelines to protect people.
“Where lock-downs are easing, fiscal policies should gradually transition away from firm support to better targeted household support, taking into account the extent of informality in the economy.
“Employment support measures will need to encourage safe return to jobs and facilitate structural shifts in labor markets for a more resilient post–COVID-19 economy”.
