The global economy may take a smaller hit from the coronavirus recession in 2020 than was once expected but faces significant long-term challenges that will likely widen inequality, the International Monetary Fund (IMF) said Tuesday.
In a set of new projections, the IMF slightly upgraded its outlook on the 2020 economic decline while warning that a lack of further fiscal and monetary support could cause deeper damage to the global economy.
The IMF now expects global growth in 2020 to fall to -4.4 percent, 0.5 percentage points better than its June projection of -4.9 percent. The international lender expects growth to rebound to 5.2 percent in 2021, down 0.2 percentage points from a June a projection of 5.4 percent.
“As a result of eased lockdowns and the rapid deployment of policy support at an unprecedented scale by central banks and governments around the world, the global economy is coming back from the depths of its collapse in the first half of this year,” wrote IMF chief economist Gita Gopinath in a Tuesday article.
“This crisis is however far from over,” she continued. “The ascent out of this calamity is likely to be long, uneven, and highly uncertain.”
The global economy has gradually rebounded from the onset of the coronavirus pandemic earlier this year, which caused the steepest economic decline since the Great Depression.
Employment and global economic activity has begun to recover as countries adapt to life amid COVID-19, which has claimed more than 1 million lives globally and more than 215,000 in the U.S.
Gopinath wrote that “signs of a stronger recovery” in the third quarter warranted the IMF’s slight upgrade to its forecast. But she warned that the total economic blow of the pandemic would linger for years and restrain the recovery for long after 2020.
“This crisis will likely leave scars well into the medium term as labor markets take time to heal, investment is held back by uncertainty and balance sheet problems, and lost schooling impairs human capital,” she wrote.
Gopinath also noted that the toll of the pandemic would hit low-income workers the hardest — particularly women, who have exited the workforce in droves — and widen the gap between the richest and poorest people and nations. She estimated that close to 90 million people will fall into “extreme deprivation” this year.
The IMF expects economic output to remain below 2019 in nearly every nation but China, where the pandemic is believed to have emerged and where the government has imposed intense restrictions to suppress outbreaks. Advanced and emerging market economies are expected to take longer to recover, as are economies that depend more on services than manufacturing.
The pandemic amounts to a “severe setback” for global growth on whole, Gopinath wrote, and the recovery from it will depend on a successful public health response and generous fiscal and monetary support.
“Tremendous progress is being made in developing tests, treatments and vaccines, but only if countries work closely together will there be enough production and widespread distribution to all parts of the world,” she wrote.
“This is the worst crisis since the Great Depression, and it will take significant innovation on the policy front, at both the national and international levels to recover from this calamity. The challenges are daunting. But there are reasons to be hopeful.”