Earlier this week, we released our latest economic forecast and have downgraded our growth projection for the world economy—a contraction of 4.9% for 2020. The recession will be deeper in 2020 and the recovery slower in 2021 than expected in our April forecast. We project a cumulative loss to the global economy of over $12 trillion over two years (2020-21).
At the same time, countries’ monetary and fiscal actions have been strong and effective in helping prevent a massive wave of bankruptcies and unemployment. It worked—it put a floor under the world economy. Globally, fiscal actions now amount to about US$10.7 trillion; and monetary policy measures amount to over $6 trillion. A response like no other to a crisis like no other.
This is truly a global crisis, with nearly 95% of countries projected to face negative per capita income growth in 2020. Emerging markets and developing economies (excluding China) are projected to take a bigger hit to GDP growth than advanced economies in 2020-21. This translates into a risk of slowing down or even reversing the process of poverty reduction we have witnessed and enjoyed in recent years—and also slowing down the convergence between emerging market and advanced economies.
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There are some signs of recovery, but it is going to be partial and uneven across sectors, countries and regions. While 75% of the world is reopening, we are not yet out of the woods. We are learning how to recover while we are still short of the scientific breakthrough towards a vaccine that we count on so much. Policymakers must remain vigilant, working towards recovery even as the pandemic remains with us.
Take some time to explore the full report, read Managing Director Kristalina Georgieva’s latest remarks, dive into Chief Economist Gita Gopinath’s newest blog, and watch the 40-min press conference + Q&A.
For a broader discussion about the role of the IMF during the COVID-19 crisis, the global recovery, and how best to tackle issues of economic inequality, equal access to opportunities, the digital transformation and more, watch MD Georgieva’s recent 30-min discussion with Milken Institute Chairman Michael Milken.
FINANCIAL MARKETS VS. THE REAL ECONOMY
Amid the human tragedy and economic recession caused by the COVID-19 pandemic, the recent surge in risk appetite in financial markets has caught analysts’ attention. After sharp declines in February and March, equity markets have rallied back, in some cases to close to their January levels, while credit spreads have narrowed significantly, even for riskier investments. This has created an apparent disconnect between financial markets and economic prospects.
In the newest Global Financial Stability Update, released yesterday, the IMF’s Tobias Adrian and Fabio Natalucci analyze the tug of war between the real economy and financial markets, and the risks involved. With huge uncertainties about economic outlook and investors highly sensitive to COVID-19 developments, pre-existing financial vulnerabilities are being exposed by the pandemic. Debt levels are rising, and potential credit losses resulting from insolvencies could test bank resilience in some countries. Some emerging market and frontier economies are facing refinancing risks, and lower-rated countries have started to regain access to markets only slowly.
For much more, read the full report and accompanying blog, which walks readers through the highlights of our latest research with plenty of charts. You can also watch the 30-min press conference + Q&A.
MOBILE MONEY GAINS SPEED
The practical challenge of quickly getting financial support in the hands of people who lost jobs amid the COVID-19 economic crisis has baffled advanced and developing economies alike. Economic lockdowns, physical distancing measures, patchy social protection systems and, especially for low-income countries, the high level of informality, complicate the task. Many governments are leveraging mobile technology to help their citizens.
Togo, a small West African nation of 8 million, was able to quickly distribute emergency financial support to half a million people in less than two weeks using mobile phones. The technology helped deliver benefits to women in particular, and it supported a transparent rollout of the program. Informal workers in Morocco are also receiving government help through their phones quickly and efficiently.
The pandemic has led many countries to strengthen their mobile money ecosystems and address specific constraints. Governments with more developed operations were able to react faster.
For a quick, thoughtful and data-rich visual primer on these issues, check out this new blog by the IMF’s Sonja Davidovic, Delphine Prady and Herve Tourpe.
If you’re looking for a deeper dive on related themes, the IMF’s Ghiath Shabsigh, Tanai Khiaonarong, and Harry Leinonen just published a new Fintech Note (PDF) that examines what the authors dub as the latest major transformation in payment and settlements—electronic and mobile payment schemes that enable integrated, immediate, and end-to-end transfers.
And finally, to learn how digital technologies are driving change more broadly across sub-Saharan Africa—from kids learning to code outside Niger’s capital, to drones delivering medicines to remote communities in Sierra Leone—listen to a new 16-min podcast with IMF economists Preya Sharma and Martha Tesfaye Woldemichael.
THE URGENCY OF CARBON PRICING
In opening remarks to the Virtual High-Level Dialogue of the Carbon Pricing Leadership Coalition, IMF Deputy Managing Director Tao Zhang spoke of how today’s economic crisis has only strengthened the urgency of carbon pricing. “As economic recoveries get underway, a great deal of investment will be taking place across the world. Having the right energy prices—reflecting supply and environmental costs—will be critical to allocating new investment efficiently across green and brown sectors,” said DMD Zhang. “Furthermore, revenues from carbon pricing can support sustainable fiscal positions and help fund social assistance and public investment for the recovery.” Read his remarks here.
SIX GLOBAL THINKERS ON LIFE POST–COVID-19
Like you, we too are wondering what life will be like post-COVID-19. So in our latest issue of F&D, we attempt to grapple with this question by asking six leading thinkers to reflect on how the pandemic has changed the world, and what we can expect on the other side. Contributors discuss how the crisis is exposing existing inequalities, accelerating the digital economy and digital behaviors, testing the limits of international cooperation, and bringing about an era of deglobalization. Daniel Susskind of Oxford University, James Manyika of the McKinsey Global Institute, Ian Bremmer of the Eurasia Group and others weigh in. Read the full compilation. Prefer the PDF? Click here to download.
IMF AND COVID-19
We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.
To date, 71 countries will have been approved for emergency financing, totaling about US$25 billion—recent approvals include Montenegro and Guinea. Looking for our latest Q&A about the IMF’s response to COVID-19? Click here. We are also continually producing a special series of notes—around 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.
In next week’s edition, we’ll discuss the latest economic outlook and impact of COVID-19 on Latin America and the Caribbean, the Asia and Pacific region, as well as sub-Saharan Africa. We’ll also feature a new podcast with Chief Economist Gita Gopinath, a virtual panel with Deputy Managing Director Tao Zhang on the future of globalization, a discussion with Middle East and Central Asia Department Director Jihad Azour on the future of Central Asia, new research on digital financial inclusion, an inside look at how Vietnam is tackling the pandemic, and much more.
Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note. And if you’re on LinkedIn, subscribe to this new weekly update for a more visual version of this newsletter.