Outcome of reopening economies far from certain - IMF
Many countries around the world have announced re-openings of the economy, reflecting the global desire for a return to normalcy amid the coronavirus pandemic.
The challenge, however, is that policymakers are still uncertain about how far to go in exposing populations to the resumption of full business activity.
The International Monetary Fund (IMF) in its most recent assessment, released on Thursday, June 25, said that the outcome of reopening is far from certain.
Overall, the fund re-iterated the deep downturn in 2020, a sluggish projected turnaround in 2021 global growth of minus 4.9 per cent in 2020, which is 1.9 percentage points below the April 2020 forecast.
Underlining the forecast is deep uncertainty.
The IMF stated in its release, “Similarly to the April 2020 projections, there is pervasive uncertainty around this forecast.”
“The forecast depends on the depth of the contraction in the second quarter of 2020 (for which complete data are not yet available) as well as the magnitude and persistence of the adverse shock.”
The IMF added that these elements, in turn, depend on several uncertain factors, including
• The length of the pandemic and required lockdowns
•Voluntary social distancing, which will affect spending
• Displaced workers’ ability to secure employment, possibly in different sectors
• Scarring from firm closures and unemployed workers exiting the workforce, which may make it more difficult for activity to bounce back once the pandemic fades
• The impact of changes to strengthen workplace safety—such as staggered work shifts, enhanced hygiene and cleaning between shifts, new workplace practices relating to the proximity of personnel on production lines—which incur business costs
• Global supply chain reconfigurations that affect productivity as companies try to enhance their resilience to supply disruptions
The IMF noted that consumption growth, in particular, has been downgraded for most economies, reflecting the larger-than-anticipated disruption to domestic activity.
The projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings.
Moreover, investment is expected to be subdued as firms defer capital expenditures amid high uncertainty.
The IMF said policy support can partially offset the deterioration in private domestic demand. But, in the baseline, global activity is expected to trough in the second quarter of 2020, recovering thereafter.
In 2021 growth is projected to strengthen to 5.4 per cent, 0.4 percentage point lower than the April forecast.
Consumption is projected to strengthen gradually next year, and investment is also expected to firm up, but to remain subdued. Global GDP for the year 2021 as a whole is forecast to just exceed its 2019 level.