International Monetary Fund warns of lasting damage, long climb out of recession

Daniel Fowler
October 14, 2020

India's economy is expected to contract 10.3% this year - 5.8 percentage points deeper than the decline the International Monetary Fund had forecast in June.

The IMF's outlook for India is worse than the central bank's prediction of a 9.5% decline in GDP in the current fiscal year.

The 189-nation lending agency relayed that emerging and developing countries are doing somewhat better than developed nations as is the case with Sub-Saharan African states, whose growth is estimated to fall by 3% this year, with a return to growth of more than 3% now forecast for 2021.

The IMF, in its latest report World Economic Outlook, October 2020: A Long and Difficult Ascent, reported that the unemployment rate will increase from 4.1% and 4.5% in 2019 and 2020 respectively and to 5.1% in 2021.

The IMF praised governments for their willingness to spend big, propping up businesses and supporting jobs, but said it would result in higher taxes in the years to come.

But its stability varies by region, with emerging markets home to more institutions that could face capital challenges should the downturn intensify, and European banks generally more vulnerable than North American ones, he said.

Policy makers must avoid prematurely withdrawing support in order to avoid setbacks, Gopinath said.

Near-term global financial stability risks have been contained for now, but vulnerabilities are rising, intensifying financial stability concerns in some countries, said the International Monetary Fund (IMF) in its Global Financial Stability Report.

"Following the contraction in 2020 and recovery in 2021, the level of global GDP in 2021 is expected to be a modest 0.6 per cent above that of 2019".

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The upgraded outlook compared to the dire forecast in June reflects the fact the downturn in the second quarter "was bad but it was the less terrible than we expected", Gopinath said in an interview with AFP.

Global GDP growth forecasts were trimmed for 2021.

This is a 1.1 percent improvement from the 5.4 percent that was projected in June and deeper than the 3.4 percent projected in April.

The IMF said this implied only limited progress toward catching up to the path of economic activity for 2020-25 projected before the pandemic for both advanced and emerging market and developing economies.

The IMF said the United States will see a 4.3 per cent contraction in gross domestic product this year, far less severe than the 8 per cent contraction forecast in June.

Overall, the fund sees global output by the end of 2021 being 0.6 per cent higher than at the end of 2019, before the pandemic, but that's driven nearly entirely by China.

China, where the virus originated, has recovered faster and will see growth of 1.9% this year, accelerating to 8.2% next year, according to the report. "This reflects a combination of factors: the continuing spread of the pandemic and overwhelmed health care systems; the greater importance of severely affected sectors, such as tourism; and the greater dependence on external finance, including remittances".

-With assistance from Zoe Schneeweiss, Jeff Kearns and Sarina Yoo.

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