Coronavirus: IMF downbeat on global economic forecast

A view on Friday of the financial district of New York City, which is under lockdown during the coronavirus pandemic. The United States, the largest economy in the world, has been hit hard by Covid-19, with the unemployment rate climbing to 14.7 per
A view on Friday of the financial district of New York City, which is under lockdown during the coronavirus pandemic. The United States, the largest economy in the world, has been hit hard by Covid-19, with the unemployment rate climbing to 14.7 per cent last month. PHOTO: AGENCE FRANCE-PRESSE
A view on Friday of the financial district of New York City, which is under lockdown during the coronavirus pandemic. The United States, the largest economy in the world, has been hit hard by Covid-19, with the unemployment rate climbing to 14.7 per
DR KRISTALINA GEORGIEVA

Its chief also warns against protectionism which would dampen recovery prospects

WASHINGTON • The head of the International Monetary Fund (IMF) has signalled a possible downward revision of global economic forecasts, and warned that a rekindling of the United States-China trade war could weaken a recovery from the coronavirus pandemic.

Recent economic data for many countries was coming in below the IMF's already pessimistic forecast for a 3 per cent contraction this year, its managing director Kristalina Georgieva told an online event hosted by the European University Institute on Friday.

"With no immediate medical solutions, more adverse scenarios might unfortunately materialise for some economies," Dr Georgieva said.

"It is the unknown about the behaviour of this virus that is clouding the horizon for projections.

"Assuming that we will have treatments and vaccines by early 2021 at the latest, then we can expect a recovery," she added, cautioning that testing and contact tracing would have to be on a much larger scale than current efforts.

The IMF's April projection for a 3 per cent contraction in the global economy would mark the steepest downturn since the Great Depression of the 1930s.

It forecast a partial rebound would follow next year, but warned that outcomes could be far worse, depending on the course of the Covid-19 pandemic.

The US economy, the largest in the world, has been particularly hard hit by widespread shutdowns aimed at containing the spread of the disease.

US government data on Friday showed the unemployment rate surging to 14.7 per cent last month. The White House said the number could hit 20 per cent this month.

 
 
 

US President Donald Trump has threatened to punish China for its handling of the outbreak by imposing new tariffs, and on Friday suggested he could end their phase one US-China trade deal.

Top trade officials from the two countries on Friday said they would press ahead with implementing the initial trade deal.

But some observers say China's promised purchases of American goods are running far behind the pace needed to meet the first-year goal of a US$77 billion (S$109 billion) increase over 2017 levels.

On Friday, Dr Georgieva warned that a retreat into protectionism could weaken the prospects for a global recovery at a critical juncture.

Asked how concerned she was that rising US-China tensions could jeopardise the global economy, she said: "It is hugely important for us to resist what may be a natural tendency to retreat behind our borders."

Reigniting world trade was critical to ensuring a global economic recovery, she said.

"Otherwise, costs go up, incomes go down, and we will be in a less secure world," she said.

She also said the IMF had already provided emergency funding to 50 of the 103 countries that had requested aid.

Poor countries remained at high risk, given a sharp drop in remittances and falling commodity prices, even if the Covid-19 mortality rates were lower than in some richer countries.

The IMF's chief economist, Professor Gita Gopinath, told an event hosted by the Council on Foreign Relations on Thursday that the situation had worsened since March.

 
 
 

Then, the IMF projected that emerging markets and developing countries would need US$2.5 trillion in external financing to manage the health and economic crisis.

"This crisis is likely to last longer," she said.

"And so the needs will go up, even above that number."

REUTERS, AGENCE FRANCE-PRESSE

 
A version of this article appeared in the print edition of The Sunday Times on May 10, 2020, with the headline 'IMF downbeat on global economic forecast'. Print Edition | Subscribe