The International Monetary Fund’s (IMF) latest World Economic Outlook (WEO) sees faltering and forecasts negative global growth of – 3 per cent in 2020 due to the coronavirus (COVID-19) pandemic.
On Monday, IMF Chief Economist, Gita Gopinath, said that under the assumption that the COVID-19 pandemic and required containment peaks in the second quarter in most countries of the world and then recedes in the second half of this year, the IMF is projecting global growth in 2020 to fall to – 3 per cent.
“This is a downgrade of 6.3 percentage points from January 2020. A major revision over a very short period of time. This makes the Great Lockdown the worst recession since the Great Depression and far worse than the global financial crisis,” she stated.
Even if the pandemic will be under control at the end of the year, the IMF only foresees a partial recovery in 2021.
“Assuming the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses and system-wide financial strength, we project global growth in 2021 to rebound to 5.8 per cent. Now, this recovery in 2021 is only partial, as the level of economic activity is projected to remain below the level we had projected for 2021 before the virus hit.”
A full economic recovery can only follow when the health crisis is being managed and controlled successfully. Advanced economies must ensure equal access to new therapies and vaccines for low-income countries, Gopinath said.
“In a sense, there is no tradeoff between saving lives and saving livelihoods. Countries should continue to generously support their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies. A global effort must be sure that when therapies and vaccines are developed, both rich and poor nations alike have immediate access.”
IMF expects Australia’s economic growth to rebound
Economic growth in Australia is projected by the IMF to fall by 6.7 per cent in 2020 as the world deals with the economic fallout from the virus.
Unemployment is expected to rise to an average of 7.6 per cent in 2020 and 8.9 per cent in 2021.
However, the IMF is also forecasting Australia to grow by 6.1 per cent in 2021, faster than the economies of the United States, Canada, Japan, France, Germany and the United Kingdom.
On Wednesday the Hon Josh Frydenberg MP, Treasurer of the Commonwealth of Australia, said that the Federal Government has taken ‘decisive action’ to protect Australians and the economy from the effects of COVID-19.
So far, the government has thrown $320 billion at the crisis, or 16.4 per cent of GDP.
“The $130 billion JobKeeper payment will help keep more Australians in jobs as we tackle the significant economic impact from the coronavirus. In the absence of the JobKeeper payment, Treasury estimates the unemployment rate would be 5 percentage points higher and would peak at around 15 per cent in the September quarter,” Mr Frydenberg said.
“The IMF also notes that the Reserve Bank of Australia (RBA) responded quickly to worsening risk sentiment by injecting $90 billion into the financial system to support small and medium businesses to deal with the economic challenges that are being caused by the spread of the coronavirus.”
“Our disciplined economic and budget management saw Standard and Poor’s last week reaffirm Australia’s AAA’s credit rating, noting that “while fiscal stimulus measures will soften the blow presented by the COVID-19 outbreak and weigh heavily on public finances in the immediate future, they won’t structurally weaken Australia’s fiscal position.”
Mr Frydenberg added that Australia approaches this crisis from a position of economic strength.
“The Federal Budget returned to balance for the first time in 11 years and Australia’s debt to GDP is about a quarter of what it is in the United States or United Kingdom, and about one-seventh of what it is in Japan.”
“Our measures are temporary, targeted and proportionate to the challenge we face and will ensure Australia bounces back stronger on the other side, without undermining the structural integrity of the budget whilst maintaining our commitment to medium-term fiscal sustainability,” he concluded.