The International Monetary Fund revised down the projection of Indonesia' economic growth from 0.5 percent in June to contraction 1.5 percent by the end of 2020 - Photo by IMF Office

JAKARTA (TheInsiderStories) – The International Monetary Fund (IMF) revised down the projection of Indonesia’ economic growth from 0.5 percent in June to contraction 1.5 percent by the end of 2020. However, Indonesian economy will improve next year and to grow around 6.1 percent.

IMF’ chief economist, Gita Gopinath, said in a virtual conference yesterday, all emerging markets and developing economies are expected to contract in this year, including Asia, where big countries, such as Indonesia and India keep trying to control the pandemic. She also projects that the world economy will experience a 4.4 percent contraction in 2020, stronger than the projection in June.

“This is the worst crisis since the Great Depression, and it will take significant innovation on the policy front, at both the national and international levels to recover from this calamity. We continue to project a deep recession in 2020. Global growth is projected to be -4.4 percent, an upward revision of 0.8 percent compared to our June update,” said the economist.

She continued, this upgrade owes to somewhat less dire outcomes in the second quarter, as well as signs of a stronger recovery in the third quarter, offset partly by downgrades in some emerging and developing economies. In 2021, the economic growth is projected to rebound to 5.2 percent, -0.2 percent below our June projection.

This improvement, said her, was driven by the recovery in economic performance in the United States and Europe, after the lockdown policy was relaxed, and Chinese economy rebound. In 2021, she said, the global economy will grow 5.2 percent, lower than the previous projection of 5.4 percent.

Economic performance in developed and developing countries except for China next year is projected to remain below the 2019 level, said Gopinath. The IMF also views that economic performance in the medium term will remain gloomy. The economy is expected to grow at a slower pace in the range of 3.5 percent between 2022 and 2025. This is because the economies of most countries are predicted to be at lower levels than before the pandemic.

The COVID-19 pandemic continues to spread with over one million lives tragically lost so far. Living with the novel coronavirus has been a challenge like no other, but the world is adapting. As a result of eased lockdowns and the rapid deployment of policy support at an unprecedented scale by central banks and governments around the world, the global economy is coming back from the depths of its collapse in the first half of this year. Employment has partially rebounded after having plummeted during the peak of the crisis.

Except for China, where output is expected to exceed 2019 levels this year, output in both advanced economies and emerging market and developing economies is projected to remain below 2019 levels even next year. Countries that rely more on contact-intensive services and oil exporters face weaker recoveries compared to manufacturing-led economies. The divergence in income prospects between advanced economies and emerging and developing economies (excluding China) triggered by this pandemic is projected to worsen.

“We are upgrading our forecast for advanced economies for 2020 to -5.8 percent, followed by a rebound in growth to 3.9 percent in 2021. For emerging market and developing countries (excluding China) we have a downgrade with growth projected to be -5.7 percent in 2020 and then a recovery to 5 percent in 2021. With this, the cumulative growth in per capita income for emerging-market and developing economies (excluding China) over 2020–21 is projected to be lower than that for advanced economies,” she noted.

According to her, After the rebound in 2021, global growth is expected to gradually slow to about 3.5 percent into the medium term. The cumulative loss in output relative to the pre-pandemic projected path is projected to grow from 11 trillion over 2020–21 to 28 trillion over 2020–25. This represents a severe setback to the improvement in average living standards across all country groups.

The considerable global fiscal support of close to $12 trillion and the extensive rate cuts, liquidity injections, and asset purchases by central banks helped saved lives and livelihoods and prevented a financial catastrophe.

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