• Sunday, June 23, 2024
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BusinessDay

Prepare for a brutal recession, IMF warns the world

deterioration

The International Monetary Fund predicted the “Great Lockdown” recession would be the steepest in almost a century and warned the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns.

In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated on Tuesday that global gross domestic product will shrink 3% this year.

That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis.

While the fund anticipated growth of 5.8% next year, which would be the strongest in records dating back to 1980, it cautioned risks are tilted to the downside. Much depends on the longevity of the pandemic, its effect on activity and related stresses in financial and commodity markets, it said.

Even if the IMF’s forecast proves accurate, it said output in both advanced and emerging markets would undershoot their pre-virus trends through 2021, seemingly dashing any lingering hopes of a V-shaped economic rebound from the health emergency.

In a further sign of pessimism, the IMF sketched out three alternative scenarios in which the virus lasted longer than expected, returned in 2021 or both.

A lengthier pandemic would wipe 3% off GDP this year compared to the baseline, while protraction plus a resumption next year would mean 8% less output than projected in 2021, it said.

“This crisis is like no other,” Gita Gopinath, the IMF’s chief economist, wrote in a foreword to its semi-annual report.

“Like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”

As with the virus’s reach, the economic hit is sweeping. In the U.S., gross domestic product is expected to contract 5.9%, compared with a 2% expansion in its last global outlook in January.

It may grow 4.7% next year, the IMF said. The euro area will probably shrink 7.5% in 2020 and rxpand 4.7% in 2021, it said.