Global downturn will be less severe than estimated: IMF

The global economic collapse caused by the coronavirus won’t be as severe as estimated earlier, the International Monetary Fund predicted Tuesday, though the recovery will be long and arduous.

The world’s gross domestic product is forecast to decline by 4.4% this year, not as sharp as the 5.2% drop the IMF projected in June but still the most severe downturn since the Great Depression.

“These are difficult times, yet there are some reasons to be hopeful,” Gita Gopinath, the IMF’s chief economist, wrote in the fund’s semiannual World Economic Outlook. “Testing has been ramped up, treatments are improving, and vaccine trials have proceeded at an unprecedented pace.”

The IMF attributed the improved outlook to better-than-expected performance in advanced economies in the second quarter, a resumption of growth in China, and signs of a more rapid recovery in the third quarter.

“While the global economy is coming back, the ascent will likely be long, uneven, and uncertain,” Ms. Gopinath wrote. She echoed remarks last week by IMF Managing Director Kristalina Georgieva, who said, “this calamity is far from over” despite a “less dire” picture than what appeared in June.

The outlook for 2020 improved for most advanced economies and major emerging markets, including the U.S., the eurozone, Brazil, Russia, and China. Estimates were reduced for India and Southeast Asia.

The IMF said the outcome would have been “much weaker if it weren’t for sizable, swift and unprecedented fiscal, monetary, and regulatory responses.”

According to the IMF, China, where the pandemic originated, was the first to shut down and the first to reopen, and it will be the only major economy to grow this year. The world’s No. 2 economy is forecast to expand by 1.9% in 2020, compared with growth of 6.1 percent last year.

Because downturns won’t be as sharp in 2020, the bounceback in 2021 will also be smaller, the IMF said. World output will grow 5.2% in 2021, down from an earlier estimate of 5.4%.

For most advanced economies, the bounceback in 2021 won’t be large enough to heal all the damage done in 2020. In the U.S., growth next year is projected at 3.1% after a 4.3% decline this year. The eurozone will expand by 5.2% after shrinking by 8.3%. Japan is likely to see a 2.3% growth, following a 5.3% drop.

World trade volumes are likely to rise by 8.3% in 2021 after falling 10.4% this year, the IMF said.

Those figures imply that a full recovery will take several years for most countries, dealing “a severe setback to the projected pace of improvement in average living standards across all country groups,” the report said.