Global economy : a scenario even more bleak for a historic recession

Gita Gopinath, chief economist of the IMF, unveiled a forecast of a recession of 4.9 % this year.

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June 24, 2020 9h46

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Global economy : a scenario even more bleak for a historic recession

Delphine Touitou

Agence France-Presse

WASHINGTON — More than 12 000 billion US $of cumulative loss to the global economy in 2020 and 2021 because of the pandemic of sars coronavirus. This “crisis like no other” is much worse than expected and the recovery will be slower than expected, warned Wednesday the international monetary Fund.

Gita Gopinath, its chief economist, unveiled a forecast of a recession of 4.9 % this year.

It is much worse than the 3 % expected in April in the heart of the pandemic, when the IMF pointed out already that this was one of the worst crisis since the Great Depression of years 30.

And for some countries, especially in Europe, the contraction of the gross domestic Product is dizzying : -12,5 % for France, -12,8 % for Spain and Italy.

“A high degree of uncertainty surrounds” these forecasts, recognizes Mrs. Gopinath as the epidemic is not over and that homes are returning to where it seemed to be controlled, as in Germany, where the authorities announced on Tuesday reconfinements local.

To date, the pandemic COVID-19 has done more than 477 500 deaths in the world.

For the time being, no country escapes the pessimism in the air at start with China, where left end of 2019, the deadly virus.

The institution of Washington now sees a 1 % growth, far short of the 6.1 per cent achieved in 2019, which was already at a historic low because of the trade war with Washington.

The health crisis will hit even harder in the united States, devoid of a social safety net and in spite of the gigantic plans of assistance from the government (about 3000 billion US$).

The GDP of the first world power will collapse by 8% compared with 5.9 % estimated in April. The recovery in 2021 will be less strong (+4.5 per cent).

Everywhere else in the world, the figures are catastrophic: -10,2 % for the euro area countries and for the United Kingdom, -9,4 % in the region of Latin America and the Caribbean, -8 % in South Africa -5,8 % in Japan, 4.7% in Middle East and central Asia, or even -4,5 % in India.

In its report, the Fund acknowledges that the pandemic has had a more negative impact on activity in the first half of 2020 as scheduled.”

In addition, he warns, “the recovery should be more gradual than expected.” In 2021, the global growth is expected to reach 5,4 % (-0,4 %).

It is about 6.5 percentage points less than projected in January before the spread of the virus in the world.

Worst or best ?

The IMF is particularly concerned about the negative impact on low-income households, which “puts at risk the significant progress made in reducing extreme poverty in the world since the 1990s.”

As for the forecasts published in April, “there is a degree of uncertainty higher than usual around this forecast,” notes the IMF.

Ultimately, this could prove to be worse or better.

Best, if there is for example the discovery of a vaccine and if there are government subsidies further, which will accelerate the recovery.

On the contrary, “new wave of infections can hinder the recovery “and quickly firm up the financial conditions, causing a debt overhang”, a summary Gita Gopinath.

In economies where rates of infection are decreasing, the recovery is now longer because of the persistence of the detachment physics in the second half.

In addition, the recovery is “uneven”, stresses Gita Gopinath. Some sectors, such as retail sales bounce back, others such as the service sectors of “intensive contacts such as hospitality, travel and tourism remain depressed”, she said.

Countries heavily dependent on these sectors will be “probably deeply affected for a prolonged period,” emphasizes the economist.

For economies struggling to contain the pandemic, containment measures continue to weigh.

In addition, the possibility of results “alternative” is not to be explained only by the evolution of the pandemic,” notes the IMF.

In fact, the magnitude of the recent rebound in financial markets raises questions as it seems to be “disconnected” changes in the economic outlook.

Finally, beyond the pandemic, other risks threaten the global economy, says the IMF, citing “escalating tensions between the United States and China,” “the fraying of relations between the Organization of the petroleum exporting countries (OPEC) and the coalition of oil producers” or “social unrest”.

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