Coronavirus shutdowns have made for a grim global outlook this year, but the IMF on Wednesday said if things go right, the recovery could come sooner than projected in their main forecast.
The situation could also deteriorate beyond the tough figures given in the World Economic Outlook, which project a global contraction of 4.9 percent, followed by a recovery of 5.4 percent next year.
An IMF report on Saturday last week said that there are high levels of uncertainty around the forecast, but also offered two alternative scenarios, one of which allows for the possibility the downturn might not be quite as terrible.
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At the time of the April forecast, IMF chief economist Gita Gopinath said her team “very strongly felt that the uncertainty was predominantly on the downside. This time round, we have both an upside risk, and a downside scenario.”
There is “the upside possibility that you might have better news on treatments and vaccines and, you know, economies can recover much faster,” she said.
However, she said that “the downside risks are also quite severe.”
One possibility is a second major outbreak takes place early next year, with new measures imposed to contain the spread that would be less disruptive than those used this year.
Even with additional fiscal support from governments, “the outbreak is assumed to cause further longer-lived damage to the supply side of economies (“scarring”) starting in 2022, as increased bankruptcies lead to capital destruction, temporary slowing in productivity growth and a temporary increase in trend unemployment,” this month’s report said.
In that case, the global economy would see growth of just 0.5 percent next year.
The other possibility is that the recovery is faster than forecast, as effective containment of the virus leads to “less precautionary behavior by households and firms once the lockdowns are lifted,” it said.
It also assumes governments continue the spending measures to support businesses and households with “no partial rollback in response to the improved outlook.”
That would mean a smaller downturn of 4.5 percent for this year, and a faster recovery next year, with 8.4 percent global growth.
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