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Daily Briefing: IMF Warns of Rich-poor Recovery Gap Between and Within Countries, Growth to Be -4.4 Percent

The outcome would have been weaker, the IMF says, had it not been for the sizable response from governments and central banks that maintained household incomes, protected cash flow for firms and supported lending.

The global economy is “coming back” the International Monetary Fund said on Tuesday, but warned that the road to recovery from the COVID-19 pandemic will likely be long and uncertain with “uneven recoveries” in emerging and developing economies significantly worsening the prospects for redressing income inequality within and between nations.

In its latest World Economic Outlook, the IMF revised its forecast for global growth to negative 4.4 percent this year a less severe contraction than the negative 5.2 percent it had forecast in June, but still on track for the worst performance since the Great Depression [Chart above]. The IMF’s forecast assumes that social distancing due to the coronavirus pandemic will continue into 2021, and that local transmission will fall everywhere by the end of 2022.

The International Monetary Fund has scaled back its estimate of the hit to the global economy from Covid-19 this year but warned that the final bill for the pandemic would total $28tn (£21.5tn) in lost output.

The IMF’s projection assumes that social distancing due to the coronavirus pandemic will continue into 2021, and that local transmission will fall everywhere by the end of 2022. National debt in advanced economies is set to reach 125% of GDP by the end of 2021 and to rise to about 65% of GDP in emerging markets during the same period [Chart above].

The big departure from the pattern of upgrades is India and some developing economies in South-East Asia. India experienced a particularly sharp decline in economic activity in the second quarter of this year.

The IMF is forecasting a less severe global recession but warns of a growing recovery gap between rich and poor within countries and between wealthy and poorer nations.

Inequality is also likely to increase, the report says. The crisis has particularly affected women, people with precarious employment, and those with relatively lower educational attainment.

In addition, the IMF mentioned that geopolitical tensions, trade friction, natural disasters, changes to financing conditions and further outbreaks remain downside risks to its projections.

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