The International Monetary Fund (IMF) is forecasting a somewhat less severe recession than it predicted in June. The change in the outlook applies to both the global economy and the UK.
But the IMF says in its World Economic Outlook that the global economy is still in deep recession and the risk of a worse outcome than in its new forecast is “sizable”.
For Britain, the IMF now predicts the economy will decline by 9.8% this year. The June forecast was 10.2%. However, the rebound expected next year is also more moderate. In the case of the UK, that downgrade is similar to the upgrade for this year.
The contraction the IMF predicts for 2020 in Britain would be the second deepest fall among the G7 group of largest rich economies. Only Italy is predicted to do worse.
Beyond the G20 India is likely to also likely to experience a deeper decline this year than the UK. So is Spain. Tourism-dependent economies are in a “particularly difficult spot”, the report notes.
Government response
For 2021, the British forecast is only a partial recovery of 5.9%, which would leave the economy still smaller than last year.
The predicted global economic contraction is also more moderate than the IMF envisaged four months ago, at 4.4%. That is followed by rebound of 5.2% next year, which is less than the previous prediction. Next year’s world downgrade is less than this year’s upgrade.
The slightly less-bleak assessment reflects downturns in several large developed economies in the April-to-June quarter of the year that were not as severe as the IMF expected. The return to growth in China, where the pandemic arrived first and was held back first, was stronger than expected.
The outcome would have been weaker, the IMF says, had it not been for the sizable response from governments and central banks that maintained household incomes, protected cash flow for firms and supported lending.
The big departure from the pattern of upgrades is India and some developing economies in South-East Asia. India experienced a particularly sharp decline in economic activity in the second quarter of this year.
‘Major setback’
The IMF warns that the global recovery is not assured while the pandemic continues to spread. Research the agency published last week suggested that the downturn was only partly attributable to lockdown restrictions on activity imposed by governments.
Much of it reflected voluntary social distancing by people reluctant to do things that expose them to increased risk of infection.
The implication of that is that a complete recovery needs more decisive progress in tackling the virus, such as a vaccine.
The report says that most economies will suffer lasting damage. There is likely to be what it calls “a major setback to living standards relative to what was expected before the pandemic”. The IMF warns that extreme poverty is likely to rise for the first time in more than twenty years.
Inequality is also likely to increase, the report says. The crisis has particularly affected women, people with precarious employment, and those with relatively lower educational attainment.
