COVID-19 pandemic recession could have been three times as bad
The International Monetary Fund (IMF) estimates that without government support through the COVID-19 pandemic last year, the global economic downturn would have tripled.
A retrospective look from the IMF estimates that fiscal measures by governments around the world have contributed about 6% to global growth in 2020, helping to mitigate the global shock, which has still shrunk production by 3.3% in 2020 The IMF says the COVID-19 recession is likely to leave a smaller mark on the global economy than the 2008 financial crisis.
“Overall, the global economy seems to be returning a little stronger than we expected,” IMF chief economist Gita Gopinat told Yahoo Finance on Tuesday.
However, the fund recommends that countries that have the opportunity to spend continue to support policy measures such as unemployment insurance and checks on incentives through economic recovery.
The IMF added that once political support is withdrawn, it should be slow to avoid drastic wage changes for those still trying to return to work.
For now, the IMF continues to set an optimistic tone for the path of the world economy. Pointing to the spread of vaccines and fiscal stimulus since its last round of forecasts in January, the IMF has improved growth expectations for 2021 and 2022 in most countries.
The fund now expects global GDP to increase by 6.0% in 2021, a 5.5% mark-up had predicted in January.
The IMF has made significant growth forecasts for the United States, now forecasting growth of 6.4% in 2021 (compared with 5.1% in its January report). This figure would take GDP levels above those before COVID.
“Additional fiscal support in some economies (especially in the United States) – on top of last year’s unprecedented fiscal response and ongoing monetary adjustment – further boosts economic prospects,” the IMF said.
The IMF also improved its forecasts for 2021 for a number of other advanced countries, including Canada (expected growth of 5.0% of GDP), Italy (4.2%) and the United Kingdom (5.3%).
For China, which has experienced COVID before the rest of the world, the IMF expects production to grow by 8.4% in 2021 (compared to 8.1% as forecast in January).
The IMF has warned that the economic outlook remains fraught with “high uncertainty”, warning that new versions of the virus could force a downgrade. The fund also expressed concern about the different effects of the virus on low-income countries, which the IMF said had “suffered more and are expected to suffer more significant medium-term losses”.
The fund called for greater country support for the COVAX project, a global dissemination effort designed to improve access to vaccines among developing countries.
The IMF also reiterated its recommendation to allocate $ 650 billion for new special drawing rights (SDRs), a reserve fund aimed in part at helping IMF member countries fight the pandemic.
“A lot of tools will be needed to prevent what I think is really worrying: after a few decades, income groups are converging, we’re actually starting to see a mismatch, at least for a while,” Gopinath told Yahoo Finance.
US Treasury Secretary Janet Yellen has spoken out in support of the new allocation, despite some congressional concerns for other countries such as Russia and China, which are likely to benefit from the SDR.
“We want to make sure that the distribution of SDRs is supported by aid and economic support in the lowest income countries,” Jelen said. said Monday. “We are working with other countries and the IMF to develop a disclosure and reporting framework that will allow us to see how the SDRs provided have been used.”
Yellen and other finance ministers will take part in talks this week as part of the IMF’s annual spring meetings.
Brian Chung is a reporter covering the Fed, economics and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.