Financial Mirror (Cyprus)

IMF slashes forecast amid “crisis like no other”

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When it comes to the economic fallout of the COVID-19 pandemic, we have gotten used to negative superlativ­es over the past few months. We’ve seen some of the worst singleday losses in stock market history, followed by an unpreceden­ted drop in consumer spending, a historic jobs crisis and what is likely the steepest and fastest decline in economic activity on record. With all that in mind, it shouldn’t come as a surprise that the Internatio­nal Monetary Fund slashed its growth forecast for the world economy once again in its latest World Economic Outlook, published on Wednesday.

Calling the current situation “a crisis like no other”, the IMF cut its global GDP growth forecast for 2020 to -4.9% from an April estimate of -3.0%, while also toning down its optimism for a swift recovery in 2021. The updated estimates would result in a 2021 GDP that is roughly in line with 2019’s economic output and 6.5% below pre-COVID-19 projection­s made in January 2020. As for the previous forecast, the IMF notes that the current estimates are subject to an unusually high degree of uncertaint­y, as it’s still unclear how the pandemic will play out.

“The baseline projection rests on key assumption­s about the fallout from the pandemic,” the IMF writes in its official release. “In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-thanantici­pated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivi­ty as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity.” The IMF also warns of a potential worsening of financial conditions, stating that the “recent rebound in financial market sentiment appears disconnect­ed from shifts in underlying economic prospects.”

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