Global Economic Outlook to Contract By -4.4% in 2020: IMF

Global economic growth is projected at -4.4 percent in the short term of 2020, a less severe contraction than what was forecast in June when growth was projected to decline by -4.9 percent, according to the International Monetary Fund (IMF).

The IMF released its update for the World Economic Outlook report on Monday under the theme "A long and difficult ascent" during the IMF and the World Bank Group’s Board of Governors annual meetings that kicked off on Monday and will last till 18 October.

Egypt’s real GDP growth, as an oil importer in the Middle East North Africa region, is expected to decline to 3.5 percent, down from 5.6 percent in 2019, and to continue to drop in 2021 to reach 2.8 percent, according to the IMF.

In terms of inflation, the report expected the inflation rate for consumer prices to be 5.7 percent in 2020 and to decline to 6.2 percent over 2021.

Current account balance is also projected to decline to 3.2 percent and to continue its downturn to reach -4.2 percent, according to the report.

The unemployment rate is expected to be 8.3 percent by the end of 2020, and is projected to jump to 9.7 percent in 2021 , according to the report.

The report said the global economic outlook revision reflects better-than anticipated second quarter GDP yields in 2020 in advanced economies mostly, where activity began to improve sooner than expected after lockdown measures were eased in May and June, with indicators of a stronger recovery in the third quarter of 2020, according to the report.

Yet, the report downgraded global economic growth to 5.2 percent in 2021, a little lower than June's projection of 5.4 percent, reflecting a more moderate downturn projected for 2020 that is consistent with expectations of persistent social distancing.

Following the contraction in 2020 and recovery in 2021, the level of global GDP in 2021 is expected to be 0.6 percent above that of 2019, according to the report.

The IMF’s growth projections imply wide negative output gaps and elevated unemployment rates during 2020 and over 2021 across advanced and emerging market economies as well.

Concerning the medium-term outlook, the report expected that after the rebound in 2021, global growth would gradually slow to about 3.5 percent, which implies only limited progress toward catching up to the pre-pandemic projections of economic activity for 2020–2025 for both advanced and emerging markets, and developing economies.

It is also a severe setback to the projected improvement in average living standards across all country groups, as the pandemic will reverse the progress made since the 1990s in reducing global poverty, and will increase inequality, according to the report.

Accordingly, people who rely on daily wage labour faced sudden income losses when restrictions to mobility were imposed; migrant workers who live far from home had even less recourse to traditional support networks as well, according to the report.

Based on that, close to 90 million people are expected to live below the $1.90 a day income threshold of extreme deprivation in 2020; furthermore, school closures during the pandemic pose a significant new challenge that could set back human capital accumulation severely, according to the report.

Medium-term growth also comes with a significant projected increase in the stock of sovereign debt, whereas downward revisions to potential output imply a smaller tax base over the medium-term than previously predicted, compounding difficulties in servicing debt obligations as well, said the report.

The IMF’s baseline projection assumes that social distancing will continue into 2021, but will subsequently fade over time as vaccine coverage expands; moreover, local transmission is assumed to be brought to low levels everywhere by the end of 2022, and economies will experience scarring from the depth of the recession and the need for structural change, entailing persistent effects on potential output.

All emerging market and developing economy regions are expected to contract this year.

Growth for emerging market and developing economies is projected at –5.7 percent for 2020 and 5 percent for 2021 with real GDP contracting by 3.3 percent in 2020; however, the projected rebound in 2021 is not sufficient to regain the 2019 level of activity by 2021.

Growth among low-income developing countries is projected at –1.2 percent in 2020, strengthening to 4.9 percent in 2021.

Among emerging market economies, inflation expectations remain relatively low compared to historical averages. Inflation is projected at 5 percent this year, declining to 4.7 percent next year, and moderating thereafter to 4 percent over the medium-term, below the historical average for the group.

Current global account deficits and surpluses are projected to shrink in 2020 to the lowest level in the past two decades and to remain broadly stable thereafter.