The International Monetary Fund has improved its forecast for the global economy in 2020, but warns that the recovery out of the COVID-19 crisis will be “long, uneven, and uncertain.”
In its updated World Economic Outlook report, the IMF projects global GDP contracting 4.4% in 2020, less severe than the 4.9% contraction it had forecast in June.
“While the second quarter was awful, it was a little less awful than we had projected, especially for advanced economies,” IMF chief economist Gita Gopinath told Yahoo Finance’s On the Move. Gopinath said progress on a vaccine for COVID-19 is a major source of optimism.
The markup was due to stronger-than-expected recoveries in several large economies, including the United States. The IMF had previously expected U.S. growth of -8.0% in 2020, but now projects a less pronounced -4.3% growth for the year.
The report credited “government transfers supporting household incomes” for the upgrade, likely referring to Economic Impact Payment checks and enhanced unemployment insurance measures as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The IMF similarly raised its outlook on other major economies like Brazil and the Euro Area, upgrading 2020 projections for growth to -5.8% and -8.3%, respectively. Those figures are 3.3 and 1.9 percentage point improvements, compared to June.
China’s return to growth was also a catalyst for an improved global forecast, with the country now expected to achieve 1.9% growth in 2020, a 0.9% improvement over its June forecast.
Some emerging countries still saw a downgrade in growth projections for 2020, underscoring the uneven nature of the pandemic. India saw the sharpest revision, now expected to see -10.3% growth this year.
Beyond 2020
Although the IMF’s global outlook improved for 2020, its expectations for 2021 dulled slightly.
In a blog post, Gopinath wrote that the “crisis will likely leave scars” in the medium term, as uncertainty curbs investment and unemployed workers face difficulty returning to jobs.
The IMF now forecasts global growth rebounding by 5.2% in 2021, a 0.2 percentage point downward revision from its June figure. In the U.S., the IMF expects 2021 growth of 3.1%, a 1.4 percentage point decrease from its June projection.
Through the recovery, Gopinath is calling on governments to prioritize income support (cash transfers, wage subsidies, unemployment insurance) in addition to debt relief. With interest rates so low, Gopinath said policymakers can afford to lean into green infrastructure investment to “significantly increase jobs and accelerate the recovery.”
The IMF warned that the spread of the pandemic remains a prominent risk, cautioning policymakers to be mindful of the trade-off between re-opening economies and protections against the virus itself.
“There are many headwinds, we’re still living with the virus,” Gopinath said.
Over one million people have died of COVID-19 globally, with the U.S. accounting for about a fifth of the deaths.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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