IMF downgrades forecast for global contraction to 4.9% in pandemic

Washington – The International Monetary Fund said Wednesday it expects the global economy to decline 4.9 percent from the previous year, raising its April estimate by 1.9 points to reflect the worsening economic fallout from the coronavirus pandemic.

With the pandemic triggering the worst global recession since the Great Depression in the 1930s, the IMF projected in an update to its World Economic Outlook for 2020 that Japan’s economy will slump 5.8 percent, 0.6 point more than earlier forecast and sharper than in 2009 at the height of the global financial crisis.

The United States, one of the nations hardest hit by the virus first detected in China late last year, will see its economy shrink 8.0 percent, 2.1 points more than the earlier estimate and its worst contraction since 1946.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said in the report.

First-quarter gross domestic product was generally worse than expected, though countries like China, India and Japan were exceptions. Economic indicators point to a more severe contraction in the second quarter, except in China, where most of the country reopened by early April, the IMF said.

Growth in consumption, in particular, was downgraded for most economies as demand shock has been triggered by social distancing measures and lockdowns to slow the virus, as well as by a rise in precautionary savings.

Global activity is expected to trough in the second quarter, with growth in 2021 projected to strengthen to 5.4 percent, 0.4 point lower than the April estimate, according to the report.

Global trade in goods and services was also revised downward by 0.9 point to a contraction of 11.9 percent, reflecting considerably weaker demand in areas including tourism. A gradual pickup in domestic demand is expected to push trade growth up to 8.0 percent in 2021, the IMF said.

Japan and the United States are expected to see their economies post growth of 2.4 percent and 4.5 percent, respectively, in 2021, but these estimates as well were lowered from the earlier estimates.

China’s economic growth forecast was revised downward by 0.2 point to 1.0 percent for 2020, and by 1.0 point to 8.2 percent for 2021.

The euro area was forecast this year to log a contraction of 10.2 percent, down 2.7 points from April’s report. But the outlook for the region was upgraded by 1.3 points to 6.0 percent growth for 2021.

Based on the latest projections, the cumulative output loss for the global economy from the pandemic will be over $12 trillion across 2020 and 2021 , the Washington-based institution said, warning that “pervasive uncertainty,” including the length of the pandemic, will continue to haunt its latest forecast.