The world economy, already “sluggish” before the coronavirus outbreak, is now bound to suffer a “severe recession” in 2020, IMF chief Kristalina Georgieva has warned and said the current crisis posed “daunting challenges” for policymakers in many emerging markets and developing economies.
Addressing the Development Committee Meeting during theannual Spring Meeting of the International Monetary Fund (IMF) and the WorldBank, the IMF Managing Director said a large global contraction in the firsthalf of this year was inevitable.
She said the coronavirus pandemic hit the world economy whenit was already in a fragile state as it was weighed down by trade disputes,policy uncertainty and geopolitical tensions.
“The global coronavirus outbreak is a crisis that islike no other and poses daunting challenges for policymakers in many emergingmarket and developing economies (EMDEs), especially where the pandemic encountersweak public health systems, capacity constraints, and limited policy space tomitigate the outbreak’s repercussions,” Georgieva said.
She said that the world economy was in a”sluggish” recovery before the coronavirus outbreak, warning that itis now bound to suffer a “severe recession” in 2020.
She said the medium termed projections were clouded byuncertainties.
“Medium-term projections are clouded by uncertaintyregarding the pandemic’s magnitude and speed of propagation, as well as thelonger-term impact of measures to contain the outbreak, such as travel bans andsocial distancing,” she said.
However, most EMDEs are already suffering from disruptionsto global value chains, lower foreign direct investment, capital outflows,tighter financing conditions, lower tourism and remittances receipts, and pricepressures for some critical imports such as foods and medicines, she said.
Rising malnutrition is expected as 368.5 million childrenacross 143 countries who normally rely on school meals for a reliable source ofdaily nutrition must now look to other sources, the IMF official said.
Georgieva said that prospects had deteriorated sharply withthe spread of the COVID-19 pandemic.
Countries that were affected early—such as China, SouthKorea, and Italy—have suffered large contractions in manufacturing activity andservices, exceeding the losses recorded at the onset of the global financialcrisis, Georgieva said.
She said retrenchments in activity have been accompanied bya sharp re-pricing of financial assets amid rapidly deteriorating risksentiment, large equity sell-offs, widening risk spreads, and reversals ofportfolio flows to EMDEs.
Many commodity prices have fallen sharply, notably for oil.
“A large global contraction in the first half of 2020is inevitable. Prospects thereafter depend on the intensity and efficacy ofcontainment efforts, progress with developing vaccines and therapies, theextent of supply disruptions, shifts in spending patterns, the impact oftighter financial conditions on activity, and the size of the policyresponse,” Georgieva said.
There is an assumption the global economy would startrecovering from the third quarter—as public health measures are scaled back andthe impact of policy support materializes.
“While the recovery is expected to pick up in 2021, byend-2021 global output would remain significantly below the pre-crisistrend,” she said. The IMF Managing Director said that the immediatepriority is to minimise the pandemic’s human toll and economic disruption.
“Bold action from the international community is neededto help LIDCs cope with the pandemic and its economic and socialrepercussions,” she said.”Thefirst priority must be to limit the human toll from the pandemic. Policymakersmust use all instruments at their disposal to slow the pandemic’s spread andprevent overloading their health systems—the idea of a tradeoff between savinglives and saving livelihoods is a false dilemma,” she added.