Growth to be subdued until health risks ease, says IMF

The adoption of lockdowns was a salient contributor to the economic contraction globally, but social distancing played a substantial role in mitigating the rise of infections and easing restrictions may help with a partial recovery, the International Monetary Fund said.

Growth is likely to remain subdued until health risks abate, the lender said in a chapter of its World Economic Outlook to be released in full next week.

Countries must protect the most vulnerable and find ways to support economic activity compatible with social distancing, for example, by reducing contact intensity in the workplace and enhancing work from home where possible.

“Regression results show that lockdowns have a considerable negative effect on economic activity,” the IMF said in The Great Lockdown: Dissecting the Economic Effects chapter.

The fund will release its revised growth projections next week during the annual meetings it holds with the World Bank. In June, it projected the world economy would contract 4.9 per cent this year, with only a mild recovery next year.

“The analysis suggests that lockdowns and voluntary social distancing played a near-comparable role in driving the economic recession,” the IMF added.

The contribution of voluntary distancing in reducing mobility and subsequent economic slowdown was stronger in advanced economies, where people can work from home more easily and sustain periods of temporary unemployment, according to the report.

The IMF said it analysed a sample of 128 countries for the economic effects of lockdowns and social distancing, using two high- frequency proxies for economic activity: mobility data from Google and job openings posted on the website.

“One enduring lesson from the Covid-19 pandemic is that any lasting economic recovery will depend on resolving the health crisis,” Francesco Grigoli, an IMF economist and Damiano Sandri, deputy division chief at the fund’s research department, wrote in a separate blog on Thursday.