The IMF forecast cast more doubt on the speed of global economic recovery as Covid-19 cases surge in the U.S. and in the America’s.
Doubts over U.S. re-opening resurface and investors start to fret again as stocks lose momentum.
Outlook downgraded
The International Monetary Fund downgraded its outlook for the world economy, projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
- The Fund downgraded its GDP forecast for 2021.
- The IMF cautioned that the forecasts are ‘surrounded with unprecedented uncertainty‘.
- The U.S. is expected to contract by 8% in 2020. The Fund had estimated a contraction of 5.9% in April.
- GDP to shrink 4.9% this year
- The fund forecast growth of 5.4%, down from 5.8% for 2021
Equal to the Great Depression?
The IMF had already warned of the biggest contraction since the Great Depression – he IMF said its increased pessimism reflected scarring from a larger-than-anticipated supply shock during the earlier lockdown, in addition to the continued hit to demand from social distancing and other safety measures. For nations struggling to control the virus spread, a longer lockdown also will take a toll on growth.
The IMF went on to say, that with the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting.
The IMF warned that the rebound in global financial-market sentiment ‘appears disconnected from shifts in underlying economic prospects‘, – suggesting that financial conditions will worsen more than forecast.
The fund lowered its expectations for consumption in most economies based on an expected increase to the disruption in domestic activity, demand disruption from social distancing, and from an increase in savings – less spending.
A vaccine will save the day
The forecast could be upgraded if there’s a medical breakthrough or business activity resumes more quickly, but significant downside risks include outbreaks requiring more lockdowns or tightening financial conditions.
Debt
“This could tip some economies into debt crises and slow activity further,” the IMF said.
In the U.S., GDP is expected to contract 8% in 2020, compared with the previous 5.9% projection. The world’s largest economy may grow 4.5% next year, the IMF said.
Trade hit
Global trade volume in goods and services will ‘probably’ fall 11.9% in 2020, the IMF said.
The IMF warned that the pandemic’s impact may significantly increase inequality, with more than 90% of emerging market and developing economies forecast to show declines in per capita income.
The IMF presented two scenarios
Scenario One
In the first, a second virus outbreak in early 2021 is envisioned, with disruptions to domestic economic activity about half the size of those assumed for 2020.
The scenario assumes emerging markets experience greater damage than advanced economies, given more limited space to support incomes. In that case, output would be 4.9% below the baseline for 2021 and would remain below the baseline in 2022.
Scenario Two
In the second scenario, with a faster than expected recovery, global output would be about 0.5% better than the baseline this year and 3% above the baseline in 2021.
Doom and gloom, or reality?
All I know is that with with any forecast – they can be frequently incorrect and with a pandemic such as this affecting all the world at the same time, forecasting is immensely difficult, if not impossible. Indeed, the IMF itself has already updated these forecasts, and likely will again. They’re best used as a guide – not an absolute.
These are unprecedented times for all of us – but it will get fixed! It’s just a case of when and not if. Humans are very resourceful and businesses even more so as we adapt to survive the pandemic and prepare for a better future.
It will get better – a successful vaccine will make sure of that.
Other market moving news
Markets see red on 24th June 2020 – Dow closed down at: 25446, Nasdaq down at: 9909, S&P 500 down to close at: 3050 and the FTSE 100 closed down at: 6124
European markets flat on 25th June and U.S. futures fall pre U.S. open
Covid-19 cases surge in many U.S. states – recording daily high in cases since April
German firm Wirecard files for insolvency after revealing $2 billion accounting black hole
Eiffel tower opens for tourists again
Royal Mail to cut some 2000 jobs
Qantas announces 6000 job cuts
New York imposes quarantine on 8 U.S. states as Covid-19 cases surge
Scheduled news due Thursday that will likely move markets
U.S. – initial jobless claims data due: 13:30 BST – One to watch!
U.S. – GDP data due: 13:30 BST – One to watch!