The International Monetary Fund, in its June update to its World Economic Outlook said the COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. Global growth is projected at -4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6 percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.
India's economy is projected to contract by 4.5 percent following a longer period of lockdown and slower recovery than anticipated 6.4 percent in April projection. The country is experiencing a longer period of lockdown and a slower recovery than anticipated in April. In 2021, India's economy is expected to grow 6 percent. India has unveiled liquidity support (4 percent of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector, the lender said.
The IMF lowered the growth forecast for the advanced economies group by 1.9 percentage points to -8 percent this year. The outlook for next year was raised to 4.8 percent from 4.5 percent. The U.S. growth forecast for this year and next, was lowered to -8 percent and 4.5 percent, respectively. Eurozone growth outlook for this year was cut to -10.2 percent, while the projection for next year was raised to 6 percent. Projections for the emerging market and developing economies group were also lowered, with the Chinese economy expected to grow 1 percent this year and 8.2 percent next year, supported by policy stimulus.
As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic. In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditionswhich have eased following the release of the April 2020 WEOwill remain broadly at current levels.
All countriesincluding those that have seemingly passed peaks in infectionsshould ensure that their health care systems are adequately resourced, the lender noted. Strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis.
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