Below is a transcript of the press briefing of the International Monetary Fund’s on its October 2020 World Economic Outlook Report.
Speakers of the virtual press briefing include; Chief Economist and Director of the Research Department at the IMF Gita Gopinath, Gian Maria Milesi-Ferretti, Deputy Director, Research Department, IMF and Malhar Shyam Nabar, Division Chief, Research Department of the IMF.
Raphael Anspach, Senior Communications officer, Communications Department of the IMF was the moderator for the press briefing.
MR. ANSPACH: Good morning, everybody, and welcome to this press conference on the IMF’s World Economic Outlook. I am Raphael Anspach from the Communications Department. I hope you and your loved ones are doing well and are staying safe. I am delighted today to be joined by my colleagues in the Research Department to go through our analysis and latest round of forecasts. Let me introduce them to you.
Gita Gopinath, Economic Counsellor and Director of the IMF’s Research Department; Gian Maria Milesi-Ferretti, Deputy Director in the IMF’s Research Department; and joining us remotely is also Malhar Nabar. He is the Division Chief in the Research Department. Thank you all for being with us today. Gita will have some introductory remarks, and then we will be happy to take your questions. With that, Gita, the floor is yours.
MS. GOPINATH: Thank you, Raphael. 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 rapid deployment of both monetary and fiscal policy support, the world is coming back from the depths of its collapse in the peak of the crisis, which was the first half of this year. Employment levels have partially rebounded after having plummeted to historic lows. That said, this crisis is far from over.
Employment remains well below pre-pandemic levels, and the labor market is increasingly polarized with low-skilled workers, youth, and women being harder hit. The poor are also getting poorer with up to 90 million people expected to fall into extreme poverty just this year. The ascent out of this calamitous Great Lockdown is likely to be long, uneven, and highly uncertain. It is therefore essential that fiscal and monetary policy support are not prematurely withdrawn as best possible.
In our latest World Economic Outlook, we continue to project a deep recession in 2020. Global growth is projected to be -4.4 percent, which is a small upgrade from June. 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 partially by downgrades in some emerging and developing economies.
In 2021, growth is projected to rebound to 5.2 percent, slightly below our June projection. Now, except for China where output is expected to exceed 2019 levels this year, output in both advanced economies and emerging and developing economies are projected to stay below 2019 levels well into 2021. Now, countries that rely heavily on contact-intensive services and oil exports face weaker recoveries compared to manufacturing-led economies.
Now, 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. This is a partial recovery. For emerging markets and developing economies, excluding China, instead we have a downgrade, with growth projected to be -5.7 percent in 2020 and then rebounding to 5 percent in 2021.
Now with this, the cumulative hit to per capita income for emerging and developing economies, excluding China, over this year and next is projected to be greater than that for advanced economies. Now, this crisis will leave scars well into the medium term as labor markets take time to heal, investment is held back by higher uncertainty and worsening balance sheets, and loss cooling impairs human capital.
After the rebound in growth in 2021, global growth is expected to gradually slow to about 3 1/2 percent in the medium-term, which means that over the medium term we have a projection of a permanent loss in output pretty much everywhere in the world. The cumulative loss in output relative to the pre-pandemic projected path will grow from 11 trillion over this year and next to 28 trillion by end 2025. Now this represents a serious setback to improvements in average living standards pretty much everywhere in the world.
Now, there remains tremendous uncertainty around the outlook. There are both downside risks and upside risks. The virus is resurging, with localized lockdowns being reinstituted. If this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe and likely amplified by severe financial market turmoil. The growing restrictions on trade and investment and rising geopolitical uncertainty could harm the recovery. On the upside, faster and better news on treatments and vaccines or further policy stimulus can significantly improve the outlook.
Now, considerable policy support has already been put in, fiscal support of up to 12 trillion, many actions by central banks around the world, and that has helped to save lives and livelihoods and prevented a financial catastrophe. However, there is still much that needs to be done to ensure a sustained recovery.
First, greater international collaboration is needed to end this health crisis. Tremendous progress is being made in developing tests, treatments, and vaccines, but only if countries work closely together will there be enough production and widespread distribution to every part of the world to end this pandemic.
Now, we estimate that if medical solutions can be made available faster and more widely relative to our current baseline, it could lead to cumulative increase in global income of almost 9 trillion dollars by end-2025, benefitting all economies and reducing divergence.
Second, to the extent possible, policies must focus aggressively on limiting persistent economic damage from this crisis. Governments should continue to provide income support to households and work to preventing rising bankruptcies and job destruction through supporting vulnerable but viable firms.
Over time, as the recovery strengthens, policies should shift to facilitating a reallocation of resources towards sectors that are growing, like e-commerce, away from sectors that are shrinking. A public green infrastructure investment push in times of low interest rates and high uncertainty can significantly increase jobs and accelerate the recovery while also serving as an initial important step towards reducing carbon emissions.
Emerging markets and developing economies are having to deal with this crisis with far fewer resources. These economies will need to prioritize critical spending for health and support for the poor and also ensure maximum efficiency, but they will also need continued support in the form of international grants, concessional aid, and in several cases, debt relief. Now where debt is unsustainable, it should be restructured sooner than later to free up finances to deal with this crisis.
Lastly, policies should be designed with an eye to placing economies on parts of paths of stronger, equitable, and sustainable growth. The global easing of monetary policy while essential for the recovery, should be complemented with measures to prevent build up of financial risks over the medium term.
Fiscal spending and output collapse have driven sovereign debt levels to a record 100 percent of global GDP. While low interest rates, along with the projected rebound in growth in 2021 will stabilize debt for many countries, it will help all countries to have a medium-term fiscal framework to give confidence that debt remains sustainable. Investments in health, digital infrastructure, and green infrastructure and education can help achieve productive, inclusive, and sustainable growth.
This is the worst crisis since the great depression, and it will take significant innovation on the policy front at both the national level and the international level to recover from this Great Lockdown. The challenges are daunting, but there are reasons to be hopeful.
The exceptional policy response, including the establishment of the European Union Recovery Fund and the use of digital technologies to provide social assistance are powerful reminders that well-designed policies protect people and collective economic well-being. At the IMF, we have provided funding at record speed to 81 members since the start of the pandemic. We have granted debt relief. We have called for extended debt service suspension for low-income countries and for the reform of the international debt architecture. Building on these actions, policies for the next stage of the crisis must seek lasting improvements in the global economy that creates prosperous futures for all. Thank you.
QUESTION: Emerging market economies are facing increasing risks from the crisis as there is a possibility of a second wave with rising cases and they face currency volatility, rising deficits, depleting foreign reserves, et cetera. How can fiscal and monetary tools be applied to overcome this crisis?
MS. GOPINATH: As I said, this pandemic is triggering divergence across advanced economies and emerging and developing economies, several of them. They have been hit by the health crisis. Several of them are hit because they are oil exporters; they have a collapse in tourism, and, importantly, they just do not have the kinds of fiscal resources that advanced economies have to deal with this crisis. Now, because we do not have a financial crisis at this point, many emerging markets are able to borrow, in fact, at record levels in foreign currency in this year relative to in the previous year. But that said, that is not going to be enough. There will be need for continued international support for many countries in terms of concessional financing aid, and there are going to be economies, developing economies, low-income countries that will need debt relief and in some cases just restructuring of their debt to make sure that we have the space to do the spending that they need.
QUESTION: . He is asking, what action must be taken now and by whom to stop the new divergence between rich and poorer economies and a rise in inequality that you are worried about?
MS. GOPINATH: Yes, so we are already seeing this. We are seeing inequality within countries grow. You are seeing low-skilled workers being much harder hit, women being hit much harder hit, younger people being much harder hit, than others are. This is going to have intergenerational consequences. We are also seeing globally that poorer countries are headed toward worse futures than advanced economies are.
Firstly, I think, just to prevent this divergence, we just need to end this health crisis, and much more needs to be done on that front. We have the science, but we do not have all the economics working at this point. Countries need to work much more closely together to ensure that there is much more rapid development or whatever the medical solution is, be it rapid testing, treatments, or vaccines, and that it is distributed widespread. One of the reasons there is this growing divergence is also because of the different rates at which we project some parts of the world will get these treatments as opposed to others.
A second piece, is that in the interim, these countries will need–poorer countries will need financial support. Within countries, we are encouraging governments to ensure that income support is provided and to, as best possible, keep jobs so that once the recovery is much stronger, people can return much faster to productive jobs.
QUESTION: What is the IMF expectation for global oil prices until the end of 2020 and over 2021?
MS. GOPINATH: In our projections, we are assuming for 2020, it will be about $41 a barrel, and then in 2021, it goes up to $46 a barrel; but just remember, in 2019, these numbers were $61, much higher relative to what it is now. So, there is a substantial hit to oil prices relative to the pre-pandemic levels.
MR. MILESI-FERRETTI: The hit has been moderated a bit by production restraints, by the main producers, but that, of course, implies less revenues for these countries even if it helps buttress the price.
QUESTION: So the question is on the U.S. economy: The new forecast is for decline of 4.3 percent in the U.S. GDP this year. This is a shift of 3.7 percentage points. Can I get an explanation of why there has been such a big turnaround in the forecast for the United States?
MS. GOPINATH: For the U.S. we do have a significant upgrade for this year, and it comes from a couple of factors. One is that in the second quarter, the recovery came about sooner than we expected, and then continuing into quarter three, the indicators have been stronger. Part of the challenge in forecasting in this crisis is that we have to rely on high-frequency indicators like mobility to be able to project where economies are headed, but what we are seeing is that that relationship between mobility and economic activity has changed quite a bit since, for instance, April and March when there was a severe lockdown, as opposed to what we are seeing right now. These are two of the factors.
MR. MILESI-FERRETTI: One factor, we had stronger performance in the second quarter than we were anticipating, still a horrible decline in GDP, but a bit less dramatic than we were envisaging and more of a recovery in the third quarter. At the time we were thinking that the increase in the number of infections could imply some decline in mobility and in activity, but that has really not materialized during the third quarter, and that has been one of the factors explaining our upward revision.
QUESTION: I have a question for you about the gross domestic product that you expect for next year, and the report notes that you expect it to be a little bit more than a half percentage point higher than in 2019 globally, but that being almost entirely due to the contribution from China. So I was curious as to when do you expect for some of the hardest hit economies or some of the hardest hit countries in terms of the virus, including the U.S., Europe, and Latin America, when do you expect for those economies to rebound to pre-pandemic levels of output? Thank you.
MS. GOPINATH: That is right. If you exclude China from our 2021 numbers, the cumulative growth between 2020 and 2021 is going to be negative for the global economy. For most countries, or many countries in the world, we are seeing a return back to 2019 levels. Remember, this is levels and not per capita terms but just in terms of levels by 2022; but then there are some regions of the world where it is projected to take even longer, and Latin America, for instance, we have that going into 2023 to return back to pre-pandemic levels. There is variation. China is already exceeding 2019 levels this year and continuing to grow cumulatively by 10 percent between this year and next, but for many, many other countries in the world, the return is gradual, 2022 or 2023.
QUESTION : My question is, this is eight months into this pandemic, and how would you describe the path of the U.S. economic recovery? President Trump described it as V-shaped, and former Vice President Biden called it K-shaped. So, what does the pace of the U.S. economic recovery mean for the global recovery?
MS. GOPINATH : The U.S. has put in a very large amount of stimulus, very large fiscal support, very large central bank support. And we have seen that because disposable incomes held up in the first half of this year, we are seeing a fairly quick recovery, which is why we have the upgrades that we do. That said, we are still in the negative territory. We are still at -4.3 percent, and we do not expect there to be a return back to 2019 levels until well into 2021 and maybe 2022. So that is what the outlook looks like. This is a partial recovery we are seeing as of now, and we expect the path going forward to take some time. The U.S., of course, is a major economy, and further increase in growth in the U.S. has positive spillovers to the rest of the world. I should also mention that the very large amounts of support provided by the U.S. central bank has been one of the factors that helped stabilize international financial markets and actually gave more breathing space for emerging markets to be able to finance on the market.
QUESTION: India has been badly hit by the pandemic. What is your assessment of the government’s response so far? Has enough been done? What other measures need to be taken to support the economy and help it get back on track?
MS. GOPINATH: We do have a significant downgrade for India’s growth for the fiscal year 2021. It is -10.3 percent. The hit to the economy has been large and pretty much broad-based. You saw that in the April, May, June months, so this has been a very hard hit. I actually would like to bring in my colleague, Malhar, to say something about what more is needed.
MR. ANSPACH : There are some problems connecting with the audio from Malhar. We will get back to him shortly. Let me move on to another question right now.
QUESTION: What would be the impact of a failure of the U.K. and the EU to agree on a trade deal?
Ms GOPINATH : We are obviously in the final, I guess, hundred meters of these negotiations, and we are hoping that there will be an agreement. That is what our baseline assumes. Last April, about a year and a half ago, we had done projections for what would be the consequences of a no-deal Brexit. And we had said that that would further reduce GDP by 3.5 to 4.5 percent over a two-year period once you have the no-deal Brexit so after the no-deal Brexit. So this is a significant hit to growth for the U.K. and for also some of the smaller economies in the EU. But our baseline assumption is that there will be some kind of an agreement.
MS. ANSPACH: Thank you, Gita. Just checking with my colleagues whether we can go back to Malhar. Yes, we can go back to him. Malhar, please. We will go back to your answer about the policy options for India in response to this crisis.
MR. NABAR : In terms of what can be done going forward, clearly on the fiscal side we believe there is more that can be done to provide support to households that have been affected by this, to provide support to firms that have been affected by this pandemic with the shutdowns and to tilt the composition of the fiscal support towards more of the direct spending and tax relief measures and to rely slightly less on the liquidity support measures, the credit guarantees, which are clearly important to support the provision of credit in the economy. But if you look at the approach that was taken, there was more of an emphasis on that type of measure. We think that there is room to recalibrate and to provide more direct relief and spending support, which could have a first order impact on preventing even worse outcomes.
On the monetary policy side, the RBI had come in very aggressively early on. It has paused recently with its interest rate cuts, looking through this inflation, the spike in inflation that they have had recently, but we believe there is more that the RBI can do, too, in terms of there is room to cut if needed, and we think that should be done once this inflation spike is more under control. And together with these efforts, both on the fiscal side and the monetary side, we think that that would put India on a path to recovery going forward.
There has also been some efforts recently on the structural side to improve medium-term growth prospects. We have had progress on labor reform bills and the farm bills. We think that this will advance their structural reform agenda in an important way, remove supply-side constraints in the agricultural sector and in the labor market, also allow for a better matching of workers with firms, provide firms with a little bit more flexibility in terms of hiring options, but at the same time also provide more social security and safety net options for workers as well. So, with those structural elements in place as well to reinforce the cyclical support, the Indian economy would be well placed to start recovering from this horrible crisis that it is experiencing right now.
QUESTION: Could you talk a bit more about the revised global economic outlook for Sub-Saharan Africa?
MS. GOPINATH: Let me say a few words and then hand it over to Malhar. Overall for the region as a whole, our numbers are close to what we had in June, so it is -3 percent for 2020 and then [-]3.1 percent in 2021, but there is significant heterogeneity within the region. You have, of course, countries that are commodity exporters that have been very negatively impacted not just by the pandemic but by the drop in oil prices. Nigeria is one such case. And then you have countries like South Africa, where you have had, again, a very big hit in terms of the pandemic and a collapse in activity because of the requirements of lockdowns. There is always a difference between countries that are more diversified, that seem to have better growth prospects than others, but it is also important to keep in mind that, for instance, in Sub-Saharan Africa, the World Bank projected that over 20 million people will enter extreme poverty this year. So, these are very large numbers, and several of these countries are also living with very high levels of debt distress.
MR. NABAR : Sure. Perhaps, to pick up on the point that you made on heterogeneity, there are vast differences across the continent. The continent as a whole has been hit very hard by this crisis. But if you look at tourism-dependent economies like Seychelles or Mauritius, they seem to be hit particularly hard, and that is not a surprise because cross-border travel has stopped, and these economies rely very heavily on tourism for tax revenues, for foreign exchange. Tourism plays a big part in contributing to GDP value added in these economies.
As Gita mentioned, the oil exporters have also been hit very hard. The other commodity exporters, such as South Africa, also are struggling through this crisis with deep contractions projected for this year.
In terms of what the global outlook means for Sub-Saharan Africa, of course, the partial recovery that we are projecting next year clearly has a beneficial impact for the outlook in terms of stronger external demand, but one key element really is that the external financial conditions, which have been extremely tight for Sub-Saharan Africa over the past several months, a turnaround in these conditions and better access for Sub-Saharan African issuers to access external hard currency bond markets would certainly help with improving the outlook. Meanwhile, the IMF has also stepped in with very widespread support on concessional financing and debt service relief to try and conserve liquidity for these economies to help them redirect resources to combatting the health crisis and the economic crisis they are facing.
QUESTION: My question is on Japan. Japan, as you know, is one of the lowest countries–its COVID cases are very low, but economic growth appears to be -5 percent. It is worse than the United States and other countries, and the recovery next year would be so slow, slower than other countries. Why? Could you explain the reason for the slow recovery in Japan?
MS. GOPINATH ; in the case of Japan, I would say that, you know, compared to other advanced economies, Japan is not among the worst hit in terms of just the GDP numbers. They have been able to control the pandemic quite well, and they have provided really extraordinary amounts of support in terms of fiscal support and monetary support, so we are seeing slow signs of coming back. Of course, Japan does depend also on external demand, and as long as that remains subdued, that is going to weigh also on the economy.
Another important distinction to keep in mind is that if you look at where Japan is headed towards the medium term, growth in Japan in the medium term is projected to be about 0.5 percent. So, it does make a big difference what the pre-trends are for a country in terms of where you are headed, aging population, and low productivity growth. So that explains the numbers that we have.
MR. MILESI-FERRETTI: Gita, I think you covered it. It is very important to take into account what trend growth is in assessing how the country is expected to perform, compared to peers that have, you know, younger populations and higher trend growth.
QUESTION: Could you give more details as to why the IMF reduced the drop of Brazil’s GDP in 2020 and reduced also the projection for the country’s growth in 2021?
MS. GOPINATH: So, yes, we do have an upgrade for Brazil since our June numbers. And this reflects the fact that recoveries after reopening came about a little bit faster. Again, these are pretty tough recessions, but, still, the recovery was a little bit faster over there, partly because of extension of some fiscal support measures. That said, the recoveries that we have are quite slow for Brazil, but also more generally for Latin America, going into next year. And in the case of Brazil, we also have the fact that, because of the return back to the fiscal limits, that would also weigh on growth next year. So there has been a big expansion this year in terms of fiscal support, but there is going to be a negative impact coming because of the pulling back of that support.
MR. MILESI-FERRETTI: Let me just add, we really have to look at what we are projecting for the level of economic activity in 2021, not just at the growth rate. Basically, we are seeing a less deep recession this year than we were anticipating, and that is also because of very substantial fiscal support and monetary support, which are absolutely essential to preserve lives and livelihoods, together with the health policy response. But when you lift the level of activity in 2020, then the growth rate in 2021 is going to be relative to a higher base and, hence, would look lower, but overall, activity in 2021 is much stronger than we were anticipating in June. Still, we would like to see a stronger recovery, and it is very important to make sure that support is well targeted but not withdrawn prematurely.
QUESTION: How can MENA region countries work to improve their macroeconomic signs amid the ongoing crisis, especially with the expected second wave of the virus?
MS. GOPINATH: So MENA regions are being hit by the pandemic quite severely, and we can see that in our growth projections in terms of contraction of over 4 percent this year. Now, there are, of course, very different regions in MENA. You have the oil exporters who are being hit by the fact that, you know, you have these oil production cuts. Prices that fell quite a bit have recovered but only recovered partially. Then you have countries that are oil importers, but then they tend to rely, for instance, on tourism; they rely on remittances, and they are getting hit on that front too. And then you have fragile states in the area.
Going forward, I think what we have learned from international experience is that dealing with further waves of the virus would require much smarter lockdowns, much more targeted, as much as possible, localized as much as possible, and also to rely very heavily on wearing masks or maintaining social distancing, on hygiene. Because, you know, measures of that kind, for instance, made the second wave of the virus that we saw in many parts of the world in the summer just have much smaller negative impact than what we saw in the spring.
MR. MILESI-FERRETTI: Let me just add, this has been a tragic crisis across the globe, but it has hit countries in the MENA region literally in terms of the impact of the pandemic very, very severely. I think it is the second most severely hit region after Latin America. Many countries with a lot of cases per million. And it is a big challenge because of the impact of the pandemic and because of the impact of the decline in oil prices for exporters; and some countries like Egypt that heavily rely on tourism are hit from that angle too. So really containing the pandemic and maintaining the policy support that is needed to protect the most vulnerable is absolutely essential.
QUESTION: What impact would a contested U.S. election have on your economic forecast in terms of what it may mean for stimulus and some of the international coordination you have talked about? And what is the baseline on when the virus is under control as of now?
MS. GOPINATH : So our assumption for the U.S. is that there will be no serious disruption during the elections or after the elections, so this is supposed to take place, just like any other previous election in the U.S. Of course, if that is not the case and there is heightened political uncertainty and disruptions, that obviously would be a downside risk to the forecast.
In terms of our assumption for the pandemic, we are assuming, based on our consultations with public health officials, that it will take until the end of 2022 to bring down local transmission to low levels pretty much everywhere in the world. So this is going to take some time, even though there is the prospect of vaccines and treatments. The lags that there will be in terms of production and delivery are some of the factors why we expect–and also in terms of the effectiveness of these measures–is one of the reasons why we think this will take at least another couple of years before we come down to low levels of local transmission.
QUESTION: The IMF report says the recurrence of a 2008-2009 global financial crisis, has been prevented so far due to massive fiscal and monetary response, but you still say that this is the worst recession since the Great Depression. Could you elaborate?
MS. GOPINATH: So we have not had a financial catastrophe at this point. In March there were major concerns. We saw serious market turmoil, but thanks to the very timely and sizable actions by central banks around the world, and also in terms of fiscal policy support–of course, that played an important role– at this point financial markets are in better shape than the real economy is.
By the way, very soon, the GFSR, the Global Financial Stability Report, will be released later this morning, which will go into much greater discussion about the relationship between financial markets and the real economy.
At the same time, if you look at the magnitude of the collapse that we have globally, which is at this point -4.4 percent, that is just unprecedented. The global financial crisis was -0.1 percent globally. This is a major crisis because it has been a very large real shock. I mean, usually you have an episode like a bursting of a bubble or overheating real estate prices that collapsed and then gets amplified through some other mechanism, like the financial crisis and the impact of that on the global economy.
But this time, we have a real shock, which is large, which is a pandemic, a health crisis that is basically shutting down services sectors around the world, shutting down consumer demand in economies, preventing investments. And, importantly, there remains tremendous uncertainty. This pandemic is not over, which means that there could be even worse outcomes. Of course, we are hoping for better outcomes. That might also be possible if we get much better news on the health front.
MR. ANSPACH: Thank you very much, Gita. Thank you very much, Gian Maria and Malhar. Before we wrap, I believe Gita has one last piece of announcement.
MS. GOPINATH : Yes, I would like to announce and share with you that my dear friend and colleague, Gian Maria, is retiring from the Fund, and I think many of you have seen him on press conferences. He has done 13 full WEOs, not counting the updates. But, Gian Maria, I just want to thank him for his phenomenal service and wish him the best of luck for his next adventure.
MR. MILESI-FERRETTI : Thank you.
MR. ANSPACH: Thank you. Thank you very much for joining us. Thank you for your patience. And as Gita mentioned, next up we have the Global Financial Stability Report press conference at 10:30 and then tomorrow the Fiscal Monitor and the Managing Director’s opening press conference. With that, stay well, stay safe, and see you soon.