Summarizing IMF’s outlook on global economy in 2020 and beyond

Three Policy Priorities For A Robust Recovery
Three Policy Priorities For A Robust Recovery

Recently, the International Monetary Fund (IMF) published its World Economic Outlook (WEO) report as of October 2020. Accordingly, updating some of the assumptions made in the June 2020 version of the report. Specifically, the IMF expressed renewed optimism about the global economy as it expects it to contract by -4.4%, relatively slow when compared with June’s forecasts of -5.3%.

This upgrade was predicated on the somewhat less dire outcomes seen in Q2-2020, as well as signs of a stronger recovery in Q3-2020 by advanced economies (AEs) which partly offset downgrades in some emerging and developing economies.

Summarizing IMF’s outlook on global economy in 2020 and beyond Brandspurng
Sources: IMF, United Capital Research

Yet, except for China, where output is expected to exceed 2019 levels this year, output in both advanced economies and emerging market and developing economies is projected to remain below 2019 levels even next year.

Countries that rely more on contact-intensive services and oil exporters face weaker recoveries compared to manufacturing-led economies. Also, due to the optimism about a slightly lower contraction in 2020, the IMF reduced its economic growth forecast for 2021 by 0.2ppt to 5.2%.

According to IMF, the current crisis will likely leave scars well into the medium term as labour markets take time to heal, investment is held back by uncertainty and balance sheet problems, and lost schooling impairs human capital. After the mild rebound in 2021, global growth is expected to gradually slow to about 3.5% into the medium term.

Notably, the cumulative loss in output relative to the pre-pandemic projected path is projected to grow from 11 trillion over 2020–21 to 28 trillion over 2020–25. This represents a severe setback to the improvement in average living.