E The IMF’s Global Economic Projections Are Discouraging, Perhaps Too Optimistic

“As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.” (Gina Gopinath, IMF blog, April 14, 2020) 

” Given the extreme uncertainty around the duration and intensity of the health crisis, we also explore alternative, more adverse scenarios. The pandemic may not recede in the second half of this year, leading to longer durations of containment, worsening financial conditions, and further breakdowns of global supply chains. In such cases, global GDP would fall even further: an additional 3 percent in 2020 if the pandemic is more protracted this year, while, if the pandemic continues into 2021, it may fall next year by an additional 8 percent compared to our baseline scenario.” (Gina Gopinath, IMF blog, April 14, 2020) 

Economists and virtually everyone in the economics and investment world have been stunned by the terrible calamity of the global pandemic.

The advanced economies have hit depression levels of unemployment in just a few months due to the lockdowns, whereas in the 1930s it took many years to reach similarly high levels of unemployment.

In fact, the global pandemic has created a series of crises – a health crisis, a financial crisis, a collapse in commodity prices, a collapse in world trade, etc.

As a result, governments in the developed world have provided unprecedented amounts of financial support to households, firms, the financial markets, and its employees. Central banks have financed virtually all of the new public spending required to keep the economies on life support.

However, unlike our experience with normal counter cyclical measures (fiscal and monetary), the new measures provide only a minimum of economic life support. Moreover, these expensive supports are hardly stimulative in the ordinary sense since all they do is maintain the advanced economies in a state of suspended animation until the Great Lockdowns are fully over.

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