JAKARTA (TheInsiderStories) – Ahead of the Spring meeting, International Monetary Fund (IMF) managing director, Kristalina Georgieva warned, that the COVID-19 will turn global economic growth “sharply negative” in 2020 with only a partial recovery seen in 2021. These, triggering the worst fallout since the 1930s Great Depression, she adds.
In her speech, she underlined the pandemic has disrupted social and economic order at lightning speed and on a scale that have not seen in living memory. The virus is causing tragic loss of life, and the lockdown needed to fight it has affected billions of people.
“Its already clear, that global growth will turn sharply negative in 2020, as you will see in our World Economic Outlook next week. In fact, we anticipate the worst economic fallout since the Great Depression,” Georgieva said in an official statement released last week.
Three months ago, IMF expect the positive per capita income growth in over160 of member countries in 2020. Today, that number has been turned to negative in this year. She noted, the bleak outlook applies to advanced and developing economies alike. She revealed, “This crisis knows no boundaries. Everybody hurts.”
Given the necessary containment measures to slow the spread of the virus, the world economy is taking a substantial hit, she noted. This is especially true for retail, hospitality, transport, and tourism. In most countries, the majority of workers are either self-employed or employed by small and medium-sized enterprises. These businesses and workers are especially exposed.
And just as the health crisis hits vulnerable people hardest, the economic crisis is expected to hit vulnerable countries hardest.
Emerging markets and low-income nations—across Africa, Latin America, and much of Asia—are at high risk. With weaker health systems to begin with, many face the dreadful challenge of fighting the virus in densely populated cities and poverty-stricken slums—where social distancing is hardly an option.
“With fewer resources to begin with, they are dangerously exposed to the ongoing demand and supply shocks, drastic tightening in financial conditions, and some may face an unsustainable debt burden. They are also exposed to massive external pressure,” Georgieva stated.
According to IMF data, in the last two months, capital outflows from emerging markets were about US$100 billion—more than three times larger than for the same period of the global financial crisis. Commodity exporters are taking a double blow from the collapse in commodity prices. And remittances—the lifeblood of so many poor people—are expected to dwindle.
“We estimate the gross external financing needs for emerging market and developing countries to be in the trillions of dollars, and they can cover only a portion of that on their own, leaving residual gaps in the hundreds of billions of dollars,” she conveyed.
The encouraging news is that all governments have sprung into action and there has been significant coordination. Georgieva said, this week the fiscal monitor will show that countries around the world have taken fiscal actions amounting to about $8 trillion. In addition, there have been massive monetary measures from the Group of 20 and others.
She continued, many of the poorer nations are also taking bold fiscal and monetary action, even as they grapple with this fundamental shock to their systems—and with far less firepower than their rich-country counterparts.
“There is no question that 2020 will be exceptionally difficult. If the pandemic fades in the second half of the year—thus allowing a gradual lifting of containment measures and reopening of the economy—our baseline assumption is for a partial recovery in 2021,” said the managing director.
But again, she stress there is tremendous uncertainty around the outlook. It could get worse depending on many variable factors, including the duration of the pandemic.
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