IMF Forecasts ‘Less Dire’ Global GDP Contraction in 2020

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By Nume Ekeghe

As the world slowly recovers from the Covid-19 pandemic, the International Monetary Fund (IMF) has projected a “less dire” global Gross Domestic Product (GDP) contraction in 2020, as against the severe global GDP contraction for the year it had predicted in June.

The Managing Director of the IMF, Kristalina Georgieva said this in her presentation ahead of the 2020 Virtual Annual Meetings of the World Bank/IMF in Washington yesterday.

“We now estimate that developments in the second and third quarters were somewhat better than expected, allowing for a small upward revision to our global forecast for 2020. And we continue to project a partial and uneven recovery in 2021,” she said.

The fund predicted that global debt to GDP would reach 100 per cent by the end of this year as countries, adding that the recovery process would be a difficult climb.

She said that risks remained high, including from rising bankruptcies and stretched valuations in financial markets, and many countries have become more vulnerable.

She said: “Emerging markets and low-income and fragile states continue to face a precarious situation. They have weaker health systems. They are highly exposed to the most affected sectors, such as tourism and commodity exports.

“And they are highly dependent on external financing. Abundant liquidity and low interest rates helped many emerging markets to regain access to borrowing but not a single country in Sub-Saharan Africa has issued external debt since March.

“The global economy is coming back from the depths of the crisis. But this calamity is far from over. All countries are now facing what I would call The Long Ascent a difficult climb that will be long, uneven, and uncertain. And prone to setbacks.

“As we embark on this ascent, we are all joined by a single rope and we are only as strong as the weakest climbers. They will need help on the way up.

“The path ahead is clouded with extraordinary uncertainty. Faster progress on health measures, such as vaccines and therapies, could speed up the “ascent.” But it could also get worse, especially if there is a significant increase in severe outbreaks.”

Furthermore, she said: “Risks remain high, including from rising bankruptcies and stretched valuations in financial markets. And many countries have become more vulnerable.

“Their debt levels have increased because of their fiscal response to the crisis and the heavy output and revenue losses. We estimate that global public debt will reach a record-high of about 100 per cent of GDP in 2020.”