## CHAPTER 1

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### Financial Conditions and Market Developments
- Equity markets have sold off dramatically; high-yield corporate and emerging market sovereign spreads have widened significantly.
- Portfolio flows to emerging market funds have reversed, particularly for hard currency bonds and equities.
- Signs of dollar funding shortages have emerged amid a general rebalancing of portfolios toward cash and safe assets.
- Currency movements:
  - US dollar has appreciated by some 8½ percent in real effective terms as of April 3.
  - Yen appreciated by about 5 percent.
  - Euro appreciated by some 3 percent.
- Central bank and liquidity actions:
  - A series of central bank rate cuts, liquidity support actions, and large asset purchase programs have been deployed (including actions by the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Bank of Canada, Reserve Bank of Australia, and emerging market central banks in Brazil, China, India, Malaysia, Mexico, the Philippines, Saudi Arabia, South Africa, Thailand, and Turkey).
  - Several central banks have activated bilateral swap lines to improve access to international liquidity across jurisdictions.

### Baseline Assumptions on the Pandemic and Near-Term Outlook
- Pandemic assumption: pandemic is assumed to fade in the second half of 2020, allowing gradual lifting of containment measures.
- Duration of shutdown and labor impacts:
  - Countries experiencing severe epidemics are assumed to lose about 8 percent of working days in 2020 over the duration of containment efforts and gradual loosening of restrictions.
  - Other countries are assumed to experience disruptions amounting, on average, to a loss of about 5 percent of working days in 2020 over the period of shutdown and gradual reopening.
- Financial conditions: tight financial conditions are expected to remain in place for the first half of 2020 and ease in the second half of 2020, consistent with the assumed path of the pandemic.
- Commodity price assumptions (based on futures market pricing at the end of March 2020):
  - Average petroleum spot prices per barrel are estimated at $35.60 in 2020 and $37.90 in 2021.
  - Metals prices are expected to decrease 15.0 percent in 2020 and 5.6 percent in 2021.
  - Food prices are projected to decrease 1.8 percent in 2020 and then increase 0.4 percent in 2021.

### Global Projections and Key Statistics
- Global growth:
  - Projected at –3.0 percent in 2020.
  - Projected to rebound to 5.8 percent in 2021.
  - The 2020 projection is marked down by more than 6 percentage points relative to the October 2019 WEO and January 2020 WEO Update projections.
- Advanced economies:
  - Group growth projected at –6.1 percent in 2020 and 4.5 percent in 2021.
  - Selected country projections for 2020:
    - United States: –5.9 percent
    - Japan: –5.2 percent
    - United Kingdom: –6.5 percent
    - Germany: –7.0 percent
    - France: –7.2 percent
    - Italy: –9.1 percent
    - Spain: –8.0 percent
- Emerging market and developing economies:
  - Group projected to contract by –1.0 percent in 2020 and grow 6.6 percent in 2021.
  - Excluding China, the group's 2020 growth rate is expected to be –2.2 percent.
  - Emerging Asia projected growth in 2020: 1.0 percent.
  - China projected growth in 2020: 1.2 percent.
  - India projected growth in 2020: 1.9 percent.
  - Indonesia projected growth in 2020: 0.5 percent.
  - Thailand projected growth in 2020: –6.7 percent.
- Regional and country highlights for 2020:
  - Latin America: –5.2 percent (Brazil: –5.3 percent; Mexico: –6.6 percent).
  - Emerging and developing Europe: –5.2 percent (Russia: –5.5 percent).
  - Middle East and Central Asia: –2.8 percent (Saudi Arabia: –2.3 percent; non-oil GDP contracting by 4 percent).
  - Sub-Saharan Africa: –1.6 percent (Nigeria: –3.4 percent; South Africa: –5.8 percent).
  - Oil-exporting countries group: growth rate projected to drop to –4.4 percent in 2020.
- Trade and prices:
  - World trade volume (goods and services) projected change in 2020: –11.0 percent; 2021: 8.4 percent.
  - World Growth Based on Market Exchange Rates in 2020: –4.2 percent; in 2021: 5.4 percent.
- Labour and activity:
  - Indicators in China suggest the contraction in economic activity in the first quarter could have been about 8 percent year over year.

### Risks, Uncertainties, and Alternative Scenarios
- Sources of extreme uncertainty:
  - Pathway of the pandemic, progress in finding a vaccine and therapies, intensity and efficacy of containment efforts.
  - Extent of supply disruptions and productivity losses, effects of tightened global financial market conditions, shifts in spending patterns, behavioral changes, confidence effects, and volatile commodity prices.
- Recovery uncertainty:
  - Rebound in 2021 depends critically on the pandemic fading in the second half of 2020 and effective policy support to prevent widespread firm bankruptcies, extended job losses, and system-wide financial strains.
  - Even with the baseline rebound, the level of GDP at the end of 2021 in both advanced and emerging market and developing economies is expected to remain below the pre-virus baseline (January 2020 WEO Update).
- Downside risks:
  - Pandemic could prove more persistent than assumed.
  - Health crisis effects on economic activity and financial markets could be more severe, leading to deeper contraction in 2020 and shallower recovery in 2021.
- Three illustrative alternative scenarios:
  - Scenario 1: a more protracted duration of the pandemic with containment measures remaining in place for about 50 percent longer than in the baseline in all countries.
    - Scenario 1 (protracted pandemic in 2020): global GDP is estimated to be 3 percent below baseline in 2020.
  - Scenario 2: a recurrence of a milder outbreak in 2021.
  - Scenario 3: both a protracted pandemic and longer containment effort in 2020 as well as a recurrence in 2021.
    - Scenario 3 (protracted pandemic in 2020 and recurrence in 2021): global GDP is estimated to be 8 percent below baseline in 2021.
- Scenario-specific assumptions and scarring:
  - Sovereign risk premiums rise by an average of 25 basis points in emerging market economies in the scenarios.
  - Corporate risk premiums rise by an average of 75 basis points in emerging market economies and 50 basis points in advanced economies.
  - Fiscal spending is assumed to respond to the decline in output roughly twice as strongly as under typical business cycle fluctuations.
  - Advanced economies scarring assumptions: 1 percent of the capital stock is lost through bankruptcies; productivity growth slows by ¼ percentage point; trend unemployment rises by ½ percentage point.
  - Emerging market economies: scarring is assumed to be 50 percent higher than in advanced economies.
  - Scenario outcomes:
    - Scenario 1: Global output is 3 percent lower than in the baseline in 2020; output remains roughly 1 percent below the baseline by the end of the WEO horizon.
    - Scenario 2: Global output is almost 5 percent below the baseline in 2021.
    - Scenario 3: Global output is almost 8 percent below the baseline in 2021; nonlinearities imply output is roughly 1 percent further below the baseline in the medium term than a linear combination of the two separate scenarios would imply.
- Additional risk:
  - Further increases in public debt above the baseline could spook markets, raising sovereign borrowing costs or the fear of such increases, which could prevent countries from providing assumed income support—leading to worse outcomes and additional scarring that would further worsen public balance sheets.

### Policy Responses and Implications
- Policy objectives:
  - Accommodate public health care requirements while limiting amplification to economic activity and the financial system, with the goal of supporting a recovery once containment allows economic activity to resume.
  - Shield people and firms affected by containment measures; minimize persistent scarring effects; ensure a rapid recovery once the pandemic fades.
- Health care priorities:
  - Expand public spending on additional testing, rehiring retired medical professionals, purchasing personal protective equipment and ventilators, and expanding isolation wards in hospitals.
  - Avoid trade restrictions on medical and health products.
  - Provide international aid to countries with limited health care capacity and resources.
- Fiscal policy guidance:
  - Sizable targeted fiscal measures should be large, timely, temporary, and targeted to cushion the impact on most-exposed households and businesses and preserve economic relationships.
  - Examples of country actions include temporary waivers of tax, social security, mortgage, and rental payments; cash handouts; deferral of tax and social security premiums; increased cash transfers; wage subsidies; and in-kind transfers for poorer households.
  - In countries with large informal sectors: expand existing support programs, introduce new programs where feasible, and further develop digital payments systems; where direct transfer infrastructure is lacking, subsidies to essential services (utilities) are an alternative.
- Social protection and labor-market measures:
  - Fund paid sick and family leave where not standard; strengthen short-time work programs; enhance unemployment insurance by relaxing eligibility and extending benefit duration; combine with higher spending on active labor market policies; consider hiring subsidies as unemployment rises.
- Preserving viable firms:
  - Temporary, targeted policies (tax relief, wage subsidies) to reduce bankruptcies and scarring.
  - Country examples include tax deadline extensions, tax cuts to sectors, expanded unemployment benefits, and direct subsidies covering wages (examples include Denmark paying 75 percent of wages for workers facing layoffs and United Kingdom announced 80 percent payment of furloughed workers’ monthly salary up to a ceiling).
- Liquidity and financial sector measures:
  - Central banks should provide ample liquidity to banks and nonbank finance companies; several central banks launched or activated targeted lending facilities for intermediaries that fund corporate commercial paper.
  - Governments could offer temporary and targeted credit guarantees or direct loans for near-term liquidity needs—policies should be temporary and transparently reported to avoid fiscal risks.
  - Loan restructuring and supervisory measures: encourage renegotiation of loan terms without lowering loan classification and provisioning standards; banks should absorb restructuring costs by drawing on capital buffers; monitor bank asset quality to determine whether fiscal support (equity injections) is required.
- Broader central bank actions:
  - Central banks in advanced and emerging market economies have responded aggressively beyond conventional interest rate cuts by significantly expanding asset purchase programs.
  - Examples of central bank measures:
    - European Central Bank’s €750 billion Pandemic Emergency Purchase Program to buy private and public securities.
    - Federal Reserve’s purchases of US Treasury debt and mortgage-backed securities and, for the first time, corporate bonds up to $300 billion.
    - Bank of Canada’s purchases of banker’s acceptances, provincial money market securities, commercial paper, government securities, and mortgage bonds.
    - Bank of Japan’s scaled-up purchases of government and corporate bonds, commercial paper, and exchange-traded funds.
  - Recently activated central bank swap lines improve access to international liquidity; extending swap lines to additional emerging market central banks could further limit financial strains.
- Multilateral cooperation and financing:
  - Multilateral cooperation priorities include slowing the spread of the virus, developing vaccines and therapies, avoiding trade restrictions on medicines and essential supplies, and assisting financially constrained countries with equipment, expertise, grants, and zero-interest emergency loans.
  - The IMF has $1 trillion in available resources and has doubled access limits of its emergency financing facilities to meet an expected demand of $100 billion in emergency financing through the Rapid Credit Facility and the Rapid Financing Instrument (the Rapid Credit Facility is only for low-income countries).
  - The Catastrophe Containment and Relief Trust can currently provide about $500 million in grant-based debt service relief, including a $185 million pledge by the United Kingdom and $100 million provided by Japan as immediately available resources.
  - Official bilateral creditors have been called upon to suspend debt repayment from International Development Association countries (those with gross national income per capita below $1,175 in 2020) that request forbearance.
- Policy sequencing and recovery phase:
  - Transition from targeted shutdown measures to policies that support rapid recovery while ensuring debt overhangs do not weigh on activity.
  - Recovery measures: continue broad monetary and fiscal stimulus where space permits, coordinated internationally; hiring subsidies; worker retraining programs and active labor market policies; clear communication to reduce voluntary social distancing; maintain strong policy frameworks and ensure inflation expectations remain well anchored.
  - Scaling back targeted measures as recovery takes hold: unwind temporary credit guarantees, wage subsidies, reduced worktime programs, and equity stakes in corporations to free fiscal space for boosting demand.
  - Balance sheet repair and debt restructuring: encourage early recognition of nonperforming loans; strengthen insolvency and debt enforcement frameworks; use bankruptcy courts and out-of-court restructuring; dissolve fundamentally unviable firms with liquidation welfare costs absorbed by social safety nets.

### Commodity Market Developments and Brent Price Prospects
- General developments:
  - Commodity prices reversed an upward trend and decreased sharply since the October 2019 WEO, hit by the COVID-19 outbreak in late January.
- Between August 2019 and February 2020:
  - Oil prices declined 7.3 percent, falling from $57.60 to $53.40.
  - Energy and base metals fell by 6.7 percent and 5.5 percent, respectively.
  - Food prices increased by 3.3 percent.
- March 2020 developments:
  - Oil prices further declined by 39.6 percent in March to $32.30 as containment measures hit transportation (which accounts for more than 60 percent of oil demand).
  - The OPEC+ coalition broke down on March 6, 2020, leading to the worst one-day price drop in the oil market since 1991; oil traded close to $20 toward the end of March before recovering somewhat in early April as OPEC+ resumed talks.
- Oil demand shock and storage:
  - International and domestic travel restrictions and sharp reduction in road traffic are expected to lead to an unprecedented decline in oil demand in 2020—mostly driven by a collapse in second-quarter oil consumption that could exceed 10 million barrels a day (that is, about 10 percent of global daily oil production).
  - Initial adjustment via sharp accumulation in oil stocks and voluntary production cuts, followed by reduced oil output in the second half of the year, especially from price-elastic shale and other high-cost producers.
- Natural gas and LNG:
  - COVID-19 containment policies in China strongly reduced natural gas demand, causing some Chinese LNG buyers to halt imports as storage tanks filled.
  - Asian LNG spot prices fell below a record low of $3.00 per million British thermal units in February.
- Brent price outlook (Brent price prospects):
  - As of March 27, oil futures contracts indicate rising Brent prices close to $45 over the next five years.
  - Baseline assumptions based on futures prices:
    - Average annual price of $34.80 a barrel in 2020 — a decrease of 43.3 percent from the 2019 average.
    - Average annual price of $36.40 a barrel in 2021 for the IMF’s average petroleum spot prices.
  - Uncertainty is described as very elevated given the unpredictable course of the pandemic.
- Metal prices and prospects:
  - Base metal prices declined by 5.5 percent between August 2019 and February 2020 and declined by an additional 9.1 percent in March 2020.
  - The IMF annual base metals price index is projected to decrease by 10.2 percent in 2020 and by a further 4.2 percent in 2021.
- Food and beverage prices:
  - The IMF’s food and beverage price index increased slightly, by 0.1 percent between the WEO reference periods.
  - Food prices are projected to decrease by 2.6 percent in 2020 and increase by 0.4 percent in 2021.
  - Upside risks include supply chain disruptions due to trade restrictions or border delays, food security concerns in regions affected by COVID-19, and export restrictions in large food exporters.
- Risks to oil prices:
  - Near-term risks are tilted to the downside because storage may fill up locally.
  - Medium-term risks are characterized as balanced.
  - Upside risks: Faster containment of the COVID-19 pandemic; a strengthening of the OPEC+ deal.
  - Downside risks: A sharper slowdown in global economic activity from the pandemic; a collapse of the OPEC+ coalition; a stronger-than-expected resilience of US shale oil production to the lower price environment.

*Source: CHAPTER 1, GLObAL PROsPECTs AND POLICIEs, International Monetary Fund | April 2020*

### CHAPTER 1

### CHAPTER 1

### Financial Conditions and Market Developments
- Equity markets have sold off dramatically; high-yield corporate and emerging market sovereign spreads have widened significantly.
- Portfolio flows to emerging market funds have reversed, particularly for hard currency bonds and equities.
- Signs of dollar funding shortages have emerged amid a general rebalancing of portfolios toward cash and safe assets.
- Currency movements:
  - US dollar has appreciated by some 8½ percent in real effective terms as of April 3.
  - Yen appreciated by about 5 percent.
  - Euro appreciated by some 3 percent.
- Central bank and liquidity actions:
  - A series of central bank rate cuts, liquidity support actions, and large asset purchase programs have been deployed (including actions by the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Bank of Canada, Reserve Bank of Australia, and emerging market central banks in Brazil, China, India, Malaysia, Mexico, the Philippines, Saudi Arabia, South Africa, Thailand, and Turkey).
  - Several central banks have activated bilateral swap lines to improve access to international liquidity across jurisdictions.

### Baseline Assumptions on the Pandemic and Near-Term Outlook
- Pandemic assumption: pandemic is assumed to fade in the second half of 2020, allowing gradual lifting of containment measures.
- Duration of shutdown and labor impacts:
  - Countries experiencing severe epidemics are assumed to lose about 8 percent of working days in 2020 over the duration of containment efforts and gradual loosening of restrictions.
  - Other countries are assumed to experience disruptions amounting, on average, to a loss of about 5 percent of working days in 2020 over the period of shutdown and gradual reopening.
- Financial conditions: tight financial conditions are expected to remain in place for the first half of 2020 and ease in the second half of 2020, consistent with the assumed path of the pandemic.
- Commodity price assumptions (based on futures market pricing at the end of March 2020):
  - Average petroleum spot prices per barrel are estimated at $35.60 in 2020 and $37.90 in 2021.
  - Metals prices are expected to decrease 15.0 percent in 2020 and 5.6 percent in 2021.
  - Food prices are projected to decrease 1.8 percent in 2020 and then increase 0.4 percent in 2021.

### Global Projections and Key Statistics
- Global growth:
  - Projected at –3.0 percent in 2020.
  - Projected to rebound to 5.8 percent in 2021.
  - The 2020 projection is marked down by more than 6 percentage points relative to the October 2019 WEO and January 2020 WEO Update projections.
- Advanced economies:
  - Group growth projected at –6.1 percent in 2020 and 4.5 percent in 2021.
  - Selected country projections for 2020:
    - United States: –5.9 percent
    - Japan: –5.2 percent
    - United Kingdom: –6.5 percent
    - Germany: –7.0 percent
    - France: –7.2 percent
    - Italy: –9.1 percent
    - Spain: –8.0 percent
- Emerging market and developing economies:
  - Group projected to contract by –1.0 percent in 2020 and grow 6.6 percent in 2021.
  - Excluding China, the group's 2020 growth rate is expected to be –2.2 percent.
  - Emerging Asia projected growth in 2020: 1.0 percent.
  - China projected growth in 2020: 1.2 percent.
  - India projected growth in 2020: 1.9 percent.
  - Indonesia projected growth in 2020: 0.5 percent.
  - Thailand projected growth in 2020: –6.7 percent.
- Regional and country highlights for 2020:
  - Latin America: –5.2 percent (Brazil: –5.3 percent; Mexico: –6.6 percent).
  - Emerging and developing Europe: –5.2 percent (Russia: –5.5 percent).
  - Middle East and Central Asia: –2.8 percent (Saudi Arabia: –2.3 percent; non-oil GDP contracting by 4 percent).
  - Sub-Saharan Africa: –1.6 percent (Nigeria: –3.4 percent; South Africa: –5.8 percent).
  - Oil-exporting countries group: growth rate projected to drop to –4.4 percent in 2020.
- Trade and prices:
  - World trade volume (goods and services) projected change in 2020: –11.0 percent; 2021: 8.4 percent.
  - World Growth Based on Market Exchange Rates in 2020: –4.2 percent; in 2021: 5.4 percent.
- Labour and activity: indicators in China suggest the contraction in economic activity in the first quarter could have been about 8 percent year over year.

### Risks and Uncertainties
- Extreme uncertainty around global growth forecast due to interacting uncertain factors:
  - Pathway of the pandemic, progress in finding a vaccine and therapies, intensity and efficacy of containment efforts.
  - Extent of supply disruptions and productivity losses, effects of tightened global financial market conditions, shifts in spending patterns, behavioral changes, confidence effects, and volatile commodity prices.
- Recovery uncertainty:
  - The rebound in 2021 depends critically on the pandemic fading in the second half of 2020 and effective policy support to prevent widespread firm bankruptcies, extended job losses, and system-wide financial strains.
  - Even with the baseline rebound, the level of GDP at the end of 2021 in both advanced and emerging market and developing economies is expected to remain below the pre-virus baseline (January 2020 WEO Update).
- Downside risks:
  - Pandemic could prove more persistent than assumed.
  - Health crisis effects on economic activity and financial markets could be more severe, leading to deeper contraction in 2020 and shallower recovery in 2021.

### Policy Responses and Implications
- Monetary and liquidity measures already taken worldwide to cushion the shock and ease market stress include:
  - Central bank rate cuts, liquidity support actions, and large asset purchase programs by major central banks.
  - Activation and expansion of bilateral US-dollar swap lines and a Federal Reserve temporary repurchase agreement facility to enable a wide range of central banks and monetary authorities to exchange US Treasury securities for US dollars.
- Policy objective:
  - Actions focused on accommodating public health care requirements while limiting amplification to economic activity and the financial system, with the goal of supporting a recovery once containment allows economic activity to resume.

*Source: CHAPTER 1, GLObAL PROsPECTs AND POLICIEs, International Monetary Fund | April 2020*

### CHAPTER 1

### CHAPTER 1

### Pandemic uncertainty and alternative scenarios
- As of early April 2020 the path of the COVID-19 pandemic remains uncertain; containment efforts may need to remain in force for longer than the first half of the year.
- Risks of renewed outbreaks from residual local clusters or imported cases could require reintroduction of public health measures, leading to a longer downturn than in the baseline.
- Staggered outbreaks across countries could imply longer-lasting disruptions to travel and global activity.
- Three alternative scenarios (illustrative) are considered:
  - Scenario 1: a more protracted duration of the pandemic with containment measures remaining in place for about 50 percent longer than in the baseline in all countries.
  - Scenario 2: a recurrence of a milder outbreak in 2021.
  - Scenario 3: both a protracted pandemic and longer containment effort in 2020 as well as a recurrence in 2021.
- Scenario deviations from the baseline:
  - Scenario 1 (protracted pandemic in 2020): global GDP is estimated to be 3 percent below baseline in 2020.
  - Scenario 3 (protracted pandemic in 2020 and recurrence in 2021): global GDP is estimated to be 8 percent below baseline in 2021.
- In all scenarios output recovers only gradually and remains below the baseline throughout the medium term.

### Economic risks and potential scarring
- Recovery could be weaker than expected even after spread slows because of:
  - Lingering uncertainty about contagion and weak confidence.
  - Establishment closures and structural shifts in firm and household behavior.
  - More lasting supply chain disruptions and weakness in aggregate demand.
  - Scars from reduced investment and bankruptcies that propagate through the economy.
- An extended risk-off episode in financial markets and tightening of financial conditions could cause deeper and longer-lasting downturns in many countries.

### Policy priorities — securing health care resources
- First priority: expand resources for health care systems to cope with surging demand:
  - Expand public spending on additional testing, rehiring retired medical professionals, purchasing personal protective equipment and ventilators, and expanding isolation wards in hospitals.
  - Avoid trade restrictions on medical and health products.
  - Provide international aid to countries with limited health care capacity and resources.

### Shared economic policy objectives and constraints
- Policy objectives across countries:
  - Shield people and firms affected by containment measures.
  - Minimize persistent scarring effects from the slowdown.
  - Ensure a rapid recovery once the pandemic fades.
- Advanced economies generally better equipped due to stronger health capacity, better access to international liquidity, and lower borrowing costs.
- In the euro area, meaningful European support targeted at hard-hit countries should supplement national efforts.
- Emerging market and developing economies face more constrained resources:
  - Increased demand for safe-haven assets and tighter financial conditions have pushed up spreads.
  - Elevated borrowing levels in some places may constrain fiscal stimulus.
  - Some countries may need to reprioritize existing spending while safeguarding key priorities such as support to vulnerable populations.
  - Automatic stabilizers should be allowed to operate even if they are small.
  - External support and strong multilateral cooperation will be crucial for financially constrained countries facing twin health and funding shocks.

### Limiting amplification of the health shock to economic activity — fiscal, monetary, and financial measures
- General approach: implement substantial targeted fiscal, monetary, and financial market measures to help affected households and businesses, maintain economic relationships through shutdowns, and enable normalization once the pandemic fades.
- Sizable targeted fiscal measures:
  - Fiscal policy objectives: cushion the impact on most-exposed households and businesses; preserve economic relationships and reduce firm closures.
  - Policy design: large, timely, temporary, and targeted.
  - Examples of country actions:
    - China and Italy: temporarily waived tax, social security, mortgage, and rental payments for most affected areas and sectors.
    - Japan: cash handouts to affected households and firms and deferral of payment of tax and social security premiums for one year.
    - Canada: increased cash transfers, implemented wage subsidies, and deferred federal tax and student loan payments.
    - Germany and Spain: temporary interest-free tax deferrals, suspended enforcement of some debt contracts, and targeted cash transfers for the self-employed and small and medium-sized enterprises.
    - India: new in-kind (food and cooking gas) and cash transfers to poorer households.
    - Botswana and South Africa: tax relief measures and targeted household support through cash transfers or wage subsidies.
    - Thailand: accelerating excess value-added tax refunds.
  - In countries with large informal sectors: expand existing support programs, introduce new programs where feasible, and further develop digital payments systems for targeted transfers (examples cited: India, Kenya, Rwanda, Uganda).
  - Where direct transfer infrastructure is lacking, subsidies to essential services (utilities) are an alternative.
- Social protections and labor-market measures:
  - Fund paid sick and family leave where not standard.
    - Example: Canada implemented a benefit for workers without paid sick leave who are quarantined or must care for children from closed schools.
    - Japan enhanced paid leave and compensation to working parents affected by school closure.
  - Strengthen short-time work programs where present (as during the global financial crisis).
  - Enhance unemployment insurance by relaxing eligibility and extending benefit duration if downturn persists; combine with higher spending on active labor market policies.
    - Example: Italy broadened the wage supplementation fund to provide income support to laid-off workers.
  - Consider hiring subsidies as unemployment rises.
- Preserving viable firms:
  - Temporary, targeted policies (tax relief, wage subsidies) can reduce bankruptcies and scarring.
  - Country examples:
    - Italy extended tax deadlines for companies in affected areas.
    - Indonesia provided tax cuts to the tourism sector and local manufacturers.
    - Spain expanded eligibility for unemployment benefits and exempted impacted firms that maintain employment from social contributions.
    - Japan enhanced subsidies to firms that maintain employment while scaling down operations.
    - Denmark will subsidize heavily impacted firms, paying 75 percent of wages for workers facing layoffs.
    - United Kingdom announced 80 percent payment of furloughed workers’ monthly salary up to a ceiling.
    - Russia introduced tax deferrals (excluding value-added taxes) for companies negatively affected by COVID-19.
    - Korea introduced wage subsidies for small merchants and increased allowances for home care and job seekers.
    - Germany and France eased and expanded firms’ access to subsidized short-time work programs.
- Provision of liquidity and credit guarantees:
  - Central banks should provide ample liquidity to banks and nonbank finance companies, especially those lending to small and medium-sized enterprises.
  - Several central banks have launched or activated targeted lending facilities for financial intermediaries that fund corporate commercial paper.
  - Governments could offer temporary and targeted credit guarantees or direct loans for near-term liquidity needs—such policies should be temporary and transparently reported to avoid fiscal risks.
  - Country examples:
    - Korea and Japan expanded lending for business operations and loan guarantees for affected small and medium-sized enterprises.
    - Philippines introduced a new microfinancing loan package for micro, small, and medium-sized enterprises.
    - Germany, Italy, and Spain offered loan guarantees for firms.
- Loan restructuring and bank supervisory measures:
  - Supervisors could encourage banks to renegotiate loan terms for distressed borrowers without lowering loan classification and provisioning standards.
  - Example: China encourages temporary deferral of loan and interest payments with no penalty for eligible small and medium-sized enterprises.
  - The People’s Bank of China increased the quota of relending and rediscounting facilities to support manufacturers of medical supplies and daily necessities as well as micro, small, and medium-sized firms at lower interest rates.
  - Banks should absorb the cost of restructuring loans by drawing on their capital conservation buffer or, where activated, by releasing their countercyclical capital buffer.
  - Bank asset quality should be closely monitored to determine whether fiscal support (equity injections, for instance) is required if the downturn persists.
- Broader stimulus and central bank actions:
  - Central banks in advanced and emerging market economies have responded aggressively beyond conventional interest rate cuts by significantly expanding asset purchase programs.
  - Examples of central bank measures:
    - European Central Bank’s €750 billion Pandemic Emergency Purchase Program to buy private and public securities.
    - Federal Reserve’s purchases of US Treasury debt and mortgage-backed securities and, for the first time, corporate bonds up to $300 billion.
    - Bank of Canada’s purchases of banker’s acceptances, provincial money market securities, commercial paper, government securities, and mortgage bonds.
    - Bank of Japan’s scaled-up purchases of government and corporate bonds, commercial paper, and exchange-traded funds.
  - Recently activated central bank swap lines improve access to international liquidity; extending swap lines to additional emerging market central banks could further limit financial strains.
- Note on policy tracking and timing:
  - G20+ economic policy responses to COVID-19 (Figure 1.7) record measures as of April 1, 2020 and categorize policies (credit/financial, tax, social, regulatory, other). "Implemented" counts countries where at least one measure has been implemented; "announced" counts countries where measures have been announced but not yet implemented.

*Source: IMF staff estimates.*

### CHAPTER 1

### ch1 - CHAPTER 1

### Policy Response and Multilateral Cooperation
- Fiscal, monetary, and financial measures can limit the amplification of the shock while mobility restrictions and lockdowns are in place by preventing large rises in borrowing costs, easing debt service burdens, and protecting cash flow for sovereigns, households, and businesses.
- Broad-based fiscal stimulus (for example, public infrastructure investment or across-the-board tax cuts) can preempt a steeper decline in confidence and limit bankruptcies, but is likely to be more effective in stimulating spending after outbreak containment is scaled back.
- Countries with flexible exchange rates should allow them to adjust, intervening under disorderly market conditions to limit financial stress, particularly where there are large balance sheet mismatches and unhedged foreign currency liabilities.
- Temporary capital flow measures on outflows could be used for countries facing sudden reversals of external financing, provided they do not substitute for warranted policy actions.
- Multilateral cooperation priorities:
  - Slow the spread of the virus and develop vaccines and therapies.
  - Avoid trade restrictions, particularly on medicines and essential supplies.
  - Assist financially constrained countries with limited health care capacity through equipment, medical expertise, grants, and zero-interest emergency loans (April 2020 Fiscal Monitor).
  - The IMF has $1 trillion in available resources and has doubled access limits of its emergency financing facilities to meet an expected demand of $100 billion in emergency financing through the Rapid Credit Facility and the Rapid Financing Instrument (the Rapid Credit Facility is only for low-income countries).
  - The Catastrophe Containment and Relief Trust can currently provide about $500 million in grant-based debt service relief, including a $185 million pledge by the United Kingdom and $100 million provided by Japan as immediately available resources.
  - Official bilateral creditors have been called upon to suspend debt repayment from International Development Association countries (those with gross national income per capita below $1,175 in 2020) that request forbearance.

### Policies for the Recovery Phase
- Transition from targeted shutdown measures to policies that support rapid recovery while ensuring debt overhangs do not weigh on activity.
- Key recovery measures:
  - Continue broad monetary and fiscal stimulus where space permits, coordinated internationally to maximize impact.
  - Hiring subsidies to encourage firms to hire unemployed workers.
  - Worker retraining programs and active labor market policies to ease matching of unemployed workers to vacancies.
  - Clear and effective communication about the pandemic’s state and decline of new infections to reduce voluntary social distancing and revive consumer demand for services.
  - Maintain strong policy frameworks and ensure inflation expectations remain well anchored, given divergent inflation risks (supply-driven price increases in some countries; weak demand and debt-deflation risks in others).
- Scaling back targeted measures as recovery takes hold:
  - Unwind temporary credit guarantees, wage subsidies, reduced worktime programs, and equity stakes in corporations to free fiscal space for boosting demand.
- Balance sheet repair and debt restructuring:
  - Encourage early and proactive recognition of nonperforming loans.
  - Strengthen insolvency and debt enforcement frameworks and facilitate development of distressed debt markets.
  - Use bankruptcy courts and out-of-court restructuring with independent experts to assess valuations and apportion losses across banks, investors, and firms.
  - Dissolve fundamentally unviable firms to avoid resource misallocation, with liquidation welfare costs absorbed by social safety nets (unemployment benefits, retraining, job-search assistance).

### Scenarios for Alternative Evolutions in the Fight against COVID-19
- Common elements across three scenarios: direct impact of containment measures; tightening in financial conditions; discretionary policy measures to support incomes and ease financial conditions; scarring from economic dislocation that policy cannot fully offset.
- Baseline assumptions on policy and financial reactions:
  - In the first scenario, containment measures in 2020 last roughly 50 percent longer than in the baseline.
  - Sovereign risk premiums rise by an average of 25 basis points in emerging market economies.
  - Corporate risk premiums rise by an average of 75 basis points in emerging market economies and 50 basis points in advanced economies.
  - Advanced economies are assumed to prevent sovereign risk premium rises via monetary policy and implement unconventional measures to contain long-term interest rates.
  - Fiscal spending is assumed to respond to the decline in output roughly twice as strongly as under typical business cycle fluctuations.
- Scarring assumptions:
  - Advanced economies: 1 percent of the capital stock is lost through bankruptcies; productivity growth slows by ¼ percentage point; trend unemployment rises by ½ percentage point.
  - Emerging market economies: scarring is assumed to be 50 percent higher than in advanced economies.
- Scenario 1 (longer 2020 outbreak):
  - Global output is 3 percent lower than in the baseline in 2020.
  - Output recovers gradually and remains roughly 1 percent below the baseline by the end of the WEO horizon.
  - Advanced and emerging market economies suffer similarly initially; emerging markets fall further below the baseline in the medium term due to greater scarring.
- Scenario 2 (second outbreak in 2021, two-thirds as severe as baseline):
  - Financial conditions tighten by twice as much as in Scenario 1.
  - Scarring materializes in 2022 and is roughly twice as large as in Scenario 1.
  - Global output is almost 5 percent below the baseline in 2021.
- Scenario 3 (longer 2020 outbreak plus second outbreak in 2021):
  - Financial conditions tighten by a further 50 percent relative to combined effects.
  - Scarring from the second outbreak increases by 50 percent.
  - Global output is almost 8 percent below the baseline in 2021.
  - Nonlinearities imply output is roughly 1 percent further below the baseline in the medium term than a linear combination of the two separate scenarios would imply.
- Additional risk: further increases in public debt above the baseline could spook markets, raising sovereign borrowing costs or the fear of such increases, which could prevent countries from providing assumed income support—leading to worse outcomes and additional scarring that would further worsen public balance sheets.

### Commodity Market Developments and Forecasts
- Commodity prices reversed an upward trend and decreased sharply since the October 2019 WEO, hit by the COVID-19 outbreak in late January.
- Between August 2019 and February 2020:
  - Oil prices declined 7.3 percent, falling from $57.60 to $53.40.
  - Energy and base metals fell by 6.7 percent and 5.5 percent, respectively.
  - Food prices increased by 3.3 percent.
- March 2020 developments:
  - Oil prices further declined by 39.6 percent in March to $32.30 as containment measures hit transportation (which accounts for more than 60 percent of oil demand).
  - The OPEC+ coalition broke down on March 6, 2020, leading to the worst one-day price drop in the oil market since 1991; oil traded close to $20 toward the end of March before recovering somewhat in early April as OPEC+ resumed talks.
- Oil demand shock and storage:
  - International and domestic travel restrictions and sharp reduction in road traffic are expected to lead to an unprecedented decline in oil demand in 2020—mostly driven by a collapse in second-quarter oil consumption that could exceed 10 million barrels a day (that is, about 10 percent of global daily oil production).
  - Initial adjustment via sharp accumulation in oil stocks and voluntary production cuts, followed by reduced oil output in the second half of the year, especially from price-elastic shale and other high-cost producers.
- Natural gas and LNG:
  - COVID-19 containment policies in China strongly reduced natural gas demand, causing some Chinese LNG buyers to halt imports as storage tanks filled.
  - Asian LNG spot prices fell below a record low of $3.00 per million British thermal units in February.
- Commodity price movements varied by commodity depending on end-use sectors, region, storability, and supply elasticity; gold was supported by flight-to-safety flows, while some agricultural raw materials and animal feed saw reduced demand but cereals (such as wheat) were supported by consumer stockpiling in affected regions.

*International Monetary Fund | April 2020*

### 3. Brent Pric e Prosp  ects

### 3. Brent Pric e Prosp  ects

### Brent price outlook
- As of March 27, oil futures contracts indicate rising Brent prices close to $45 over the next five years.
- Baseline assumptions based on futures prices:
  - Average annual price of $34.80 a barrel in 2020 — a decrease of 43.3 percent from the 2019 average.
  - Average annual price of $36.40 a barrel in 2021 for the IMF’s average petroleum spot prices.
- Uncertainty is described as very elevated given the unpredictable course of the pandemic.

### Risks to oil prices
- Near-term risks are tilted to the downside because storage may fill up locally.
- Medium-term risks are characterized as balanced.
- Upside risks:
  - Faster containment of the COVID-19 pandemic.
  - A strengthening of the OPEC+ deal.
- Downside risks:
  - A sharper slowdown in global economic activity from the pandemic (identified as the biggest downside risk).
  - A collapse of the OPEC+ coalition.
  - A stronger-than-expected resilience of US shale oil production to the lower price environment.

### Metal prices and prospects
- Recent movements:
  - Base metal prices declined by 5.5 percent between August 2019 and February 2020.
  - Base metal prices declined by an additional 9.1 percent in March 2020.
  - Shutdown of Chinese factories in February and later shutdowns in Europe and the United States reduced demand for industrial metals.
  - Metal stocks at warehouses approved by major metal exchanges increased notably, buffering spot price impact and shifting the futures curve down significantly.
- Projections:
  - The IMF annual base metals price index is projected to decrease by 10.2 percent in 2020.
  - The index is projected to decrease by a further 4.2 percent in 2021.
- Risks:
  - Downside: A further and more prolonged slowdown in metal-intensive sectors’ economic activity.
  - Upside: Supply stoppages.

### Food and beverage prices
- Recent movements:
  - The IMF’s food and beverage price index increased slightly, by 0.1 percent between the WEO reference periods.
  - Drivers of the increase included cereals, oranges, seafood, and arabica coffee; declines occurred for meat, tea, wool, and cotton.
  - The COVID-19 pandemic reversed earlier upward trends for many agricultural raw materials, such as cotton and wool.
  - The recent oil price decline exerted downward pressure on palm oil, soy oil, sugar, and corn.
  - Consumer stockpiling in regions affected by COVID-19 provided support for prices of wheat, rice, orange juice, and arabica coffee.
- Projections:
  - Food prices are projected to decrease by 2.6 percent in 2020.
  - Food prices are projected to increase by 0.4 percent in 2021.
- Risks:
  - Upside risks include supply chain disruptions due to trade restrictions or border delays, food security concerns in regions affected by COVID-19, and export restrictions in large food exporters.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/weo/2020/april/english/ch1.pdf_