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

It almost sounds like a cliché, but there will clearly be some permanent losses resulting from the Great Lockdown, as well as some permanent structural changes in labour, financial and product markets, and in commerce in general.   

Turning to the recent IMF report, the key timing assumption used in its baseline projections for 2020 and 2021 is that for most countries the pandemic and its containment reaches its peak in the second quarter of this year and then recedes into 2021. 

While the economic forecast assumes that some restrictions will still stay in place in 2021, nonetheless the global economy should have a bit of a rebound next year, which we hope is not the equivalent of a dead cat bounce. 

The IMF baseline projects global real GDP to decline of 3% this year, which represents a massive 5.9 percentage points reduction from the 2.9% expansion in 2019. Global growth is projected to rebound 5.8% next year. 

A worst-case scenario would have the pandemic not receding in the second half of this year, which leads to a longer duration on containment, worsening financial conditions, and a further breakdown of global supply chains. 

In the worst-case scenario, global GDP would fall an additional 3 percent in 2020 and an additional 8 percent in 2021.

The following IMF charts highlight that that this year’s 3% global GDP decline is incredibly worse than the decline experienced during the financial crisis of 2009. 

The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion US dollars, greater than the economies of Japan and Germany, combined. As well, bear in mind that the global recovery in 2021 is only partial, as the level of economic activity is projected to remain far below the level we started at before the virus hit. 

The 5.8% global growth rebound in 2021 will be led by China and the emerging market countries recovering faster than the advanced economies.

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