IMF says 2021 growth could be 0% if second coronavirus wave hits early on
Sputnik news agency and radio 16:25 GMT 24.06.2020
WAHINGTON (Sputnik) - A potential new wave of the novel coronavirus outbreak in 2021 could reduce global economic growth to nought, International Monetary Fund (IMF) Chief Economist Gita Gopinath said on Wednesday following the release of the updated World Economic Outlook.
"When we have looked at the impact of a second wave that hits in, say, early 2021- in that case, instead of growth of 5.4 percent it would be zero percent", Gopinath said.
The IMF chief economist warned that such a development would be a dramatic hit for the global economy. Gopinath said the novel coronavirus crisis is not over and the world could potentially face an increase in the number of infections. However, she did not forecast imposing lockdowns as was done in the first half of 2020 and brought the world economy to a halt.
IMF forecasts in its updated World Economic Outlook that economic growth will increase to 5.4 percent.
New COVID-19 Wave May Significantly Disrupt Domestic Economic Activity in 2021
“While the baseline does not rule out a possible resurgence in cases in some countries, the first scenario assumes instead that a second major global outbreak takes place early in 2021", the IMF said in its updated World Economic Outlook (WEO).
"The disruptions to domestic economic activity in each country in 2021 - resulting from measures taken to contain this second outbreak - are assumed to be roughly one-half the size of what is already in the baseline for 2020", the IMF said.
In such a scenario, the fund does not rule out the possibility of additional tightening in financial conditions in 2021.
"The additional tightening is about one-half of the increase in sovereign and corporate spreads seen since the beginning of the pandemic. In the second scenario, it is assumed that the recovery is faster than expected, as greater confidence in efficient post-lockdown measures lead to effective containment and less precautionary behaviour by households and firms once the lockdowns are lifted", the IMF said.
Faster recovery will soften financial conditions next year, the report added.
"It is important to stress the considerable uncertainty surrounding these scenarios, especially Scenario 1. The second outbreak could take place in the fall, in which case the negative impact on activity in 2020 would be even larger than in the current baseline", WEO said.
The IMF stressed the unprecedented character of the current situation. "For the first time, all regions are projected to experience negative growth in 2020", it said.
The fund has forecasted significant downside risks, specifically, in case of recurring waves of the pandemic.
"A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment spells, and as unemployed workers leave the labor force entirely", it said. "Financial conditions may again tighten as in January – March, exposing vulnerabilities among borrowers".
The IMF slashed its 2020 global growth forecast by 1.9 percent to -4.9 percent.
According to the global health body, the coronavirus death toll worldwide has surpassed 469,000 people, with the number of cases nearly reaching 9 million.
