Global economy will bear scars of covid, warns IMF1 min read . Updated: 12 Jun 2020, 11:36 PM IST
- IMF’s growth outlook for June likely to be worse than April, says its chief economist
- The need for labour allocations, onset of bankruptcies hint at significant scarring effects on economy
The global economy is recovering more slowly than expected from the coronavirus pandemic and will bear lingering scars from the experience, according to the International Monetary Fund.
The IMF is set to release economic growth projections 24 June that “will be, very likely, worse than what we had" in April, even as there remains “profound uncertainty" around the forecasts, Gita Gopinath, the IMF’s chief economist, said in a video recorded 4 June and released Friday as part of the seventh annual Asian Monetary Policy Forum.
“One has to be quite concerned about the path of recovery," said Gopinath, citing the depth of the crisis, the need for labour reallocation, the onset of bankruptcies and insolvency issues, and changes in consumer behaviour. “Many of these variables point to significant scarring effects."
In April the IMF estimated the global economy would shrink by 3% this year—the deepest contraction since the Great Depression—and anticipated an even worse outcome if the coronavirus lingers or returns. That analysis saw growth rebounding to 5.8% in 2021.
The forum, which is usually held live as a series of in-person panels, was co-hosted by the Monetary Authority of Singapore, Asian Bureau of Finance and Economic Research, University of Chicago Booth School of Business, and National University of Singapore Business School.
Asian economies are further along in their recoveries and generally have done better at containing their virus outbreaks, Gopinath said, noting Taiwan’s success specifically.
Asia’s deep integration with the Chinese economy, where “containment has worked very well," could also provide a “mild positive" for the region, she added. At the same time, the region’s open economies are especially vulnerable to the downturn in global trade, and external financing needs and fiscal vulnerabilities remain for emerging markets even after effective liquidity injections, she said.
Geopolitical issues, including US-China tensions and turmoil in Hong Kong, also continue to exacerbate risk in Asia and worldwide, Gopinath said.
“All of that has very big implications for global supply chains, the location of production going forward, the risks to globalization and the rise of protectionism," she said.