## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/weo/2020/october/english/execsum.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2020/october/english/execsum.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2020/october/english/execsum.pdf.json) --- ### Global Growth Outlook and Risks - Near-term outlook: - Global growth is projected at −4.4 percent in 2020. - Global growth is projected at 5.2 percent in 2021. - Following the contraction in 2020 and recovery in 2021, the level of global GDP in 2021 is expected to be a modest 0.6 percent above that of 2019. - The growth projections imply wide negative output gaps and elevated unemployment rates this year and in 2021 across both advanced and emerging market economies. - Revision from the June 2020 WEO Update reflects better-than-anticipated second quarter GDP outturns, mostly in advanced economies, and indicators of a stronger recovery in the third quarter. - Medium-term outlook: - After the rebound in 2021, global growth is expected to gradually slow to about 3.5 percent into the medium term. - Only limited progress toward catching up to the path of economic activity for 2020–25 projected before the pandemic is expected for both advanced and emerging market and developing economies. - The pandemic will reverse progress made since the 1990s in reducing global poverty and will increase inequality. - Close to 90 million people could fall below the $1.90 a day income threshold of extreme deprivation this year. - School closures during the pandemic pose a significant new challenge that could set back human capital accumulation severely. - The subdued medium-term outlook comes with a significant projected increase in the stock of sovereign debt and a smaller tax base due to downward revisions to potential output. - Baseline assumptions and scarring: - Baseline assumes social distancing will continue into 2021 but will subsequently fade over time as vaccine coverage expands and therapies improve. - Local transmission is assumed to be brought to low levels everywhere by the end of 2022. - Medium-term projections assume economies will experience scarring from the depth of the recession and the need for structural change, with persistent effects on potential output. - Scarring channels include adjustment costs and productivity impacts for surviving firms upgrading workplace safety, firm bankruptcies, costly resource reallocation across sectors, and discouraged workers’ exit from the workforce. - Scarring compounds pre-pandemic forces that dragged productivity growth lower: relatively slow investment growth, more modest improvements in human capital, and slower efficiency gains in combining technology with factors of production. - Risks: - Uncertainty surrounding the baseline projection is unusually large. - Key risk layers: the path of the pandemic and public health response; extent of global spillovers from soft demand, weaker tourism, and lower remittances; financial market sentiment and implications for global capital flows; uncertainty over damage to supply potential depending on persistence of the shock, policy response, and sectoral mismatches. - Upside possibilities: faster progress with vaccines and treatments and workplace/consumer behavior changes could allow activity to return more rapidly; extension of fiscal countermeasures into 2021 could lift growth above the forecast. - Downside scenarios: virus resurgence, slower progress on treatments and vaccines, unequal access to them, renewed social distancing and tighter lockdowns, rising bankruptcies, deteriorating financial sentiment triggering sudden stops in lending or failures to roll over existing debt, and cross-border spillovers amplifying shocks. ### Policy Priorities: Near-Term Imperatives, Medium-Term Challenges - Design principle: - Near-term support should be designed to guide economies to paths of stronger, equitable, and resilient growth, balancing immediate support with medium-term debt sustainability given the hit to potential output. - Fiscal and spending priorities: - Tax and spending measures should privilege initiatives that can lift potential output, ensure participatory growth, and protect the vulnerable. - Investments recommended: health, education, and high-return infrastructure projects that help move the economy to lower carbon dependence. - Research spending to facilitate innovation and technology adoption. - Safeguarding critical social spending to protect the most vulnerable and support near-term activity. - Adhere to highest standards of debt transparency to avoid future rollover difficulties and higher sovereign risk premiums. - Multilateral priorities and support for low-capacity countries: - Fund advance purchase commitments at the global level for vaccines under trial to incentivize rapid scaling up of production and worldwide distribution of affordable doses. - Bolster multilateral initiatives for vaccine development and manufacture, including the Coalition for Epidemic Preparedness Innovations and Gavi, the Vaccine Alliance. - Help countries with limited health care capacity through assistance with medical equipment and know-how, debt relief, grants, and concessional financing. - Where debt restructuring is needed, creditors and borrowers should quickly agree on mutually acceptable terms. - The global financial safety net can help countries deal with external funding shortfalls. - Since the onset of the crisis, the IMF has expeditiously provided funding from its various lending facilities to about 80 countries at unprecedented speed. - Domestic fiscal strategy and debt management: - Where fiscal rules constrain action, temporary suspension would be warranted, combined with a commitment to a gradual consolidation path after the crisis abates to restore compliance over the medium term. - Create room for immediate spending needs by prioritizing crisis countermeasures and reducing wasteful and poorly targeted subsidies. - Extend maturities on public debt and lock in low interest rates to reduce debt service and free up resources for crisis mitigation. - Consider raising progressive taxes on more affluent individuals and those relatively less affected by the crisis (including increasing tax rates on higher income brackets, high-end property, capital gains, and wealth) and changes to corporate taxation commensurate with profitability. - Cooperate on the design of international corporate taxation to respond to challenges of the digital economy. - Health system and containment measures: - Ensure health care systems can cope with elevated demand by securing adequate resources and prioritizing health care spending: testing; contact tracing; personal protective equipment; life-saving equipment such as ventilators; and facilities such as emergency rooms, intensive care units, and isolation wards. - Countries with rising infections need mitigation measures to slow transmission; Chapter 2 shows lockdowns are effective in bringing down infections. - Economic policy should cushion income losses for affected people and firms, support resource reallocation away from contact-intensive sectors, and pursue retraining and reskilling. - Displaced workers will need extended income support as they retrain and search for jobs. - Broad-based accommodative monetary and fiscal responses—where fiscal space exists—can help prevent deeper and longer-lasting downturns. - Reopening and reallocation: - As countries reopen, policies must support the recovery by gradually removing targeted support, facilitating reallocation of workers and resources to sectors less affected by social distancing, and providing stimulus where needed. - Redeploy fiscal resources to public investment, including in renewable energy, improving power transmission efficiency, and retrofitting buildings to reduce carbon footprint. - Expand social spending where safety net gaps exist: enhance paid family and sick leave, expand unemployment insurance eligibility, and strengthen health care benefit coverage. - Where inflation expectations are anchored, accommodative monetary policy can help by containing borrowing costs. - Climate and multilateral cooperation: - Multilateral cooperation is needed to defuse trade and technology tensions and address gaps in the rules-based multilateral trading system. - Joint action—particularly by the largest emitters—combining steadily rising carbon prices with a green investment push is needed to reduce emissions consistent with limiting increases in global temperature to the targets of the 2015 Paris Agreement. - A broadly adopted, growth-friendly mitigation package could raise global activity through investment in green infrastructure over the near term, with modest output costs over the medium term, and significantly boost incomes in the second half of the century by avoiding damages and catastrophic risks from climate change. - Health outcomes would begin to improve immediately in many countries thanks to reduced local air pollution. - Strengthen defenses against calamitous health crises by augmenting stockpiles of protective equipment and essential medical supplies, financing research, and ensuring adequate ongoing assistance to countries with limited health care capacity, including through support of international organizations. *International Monetary Fund | October 2020* --- _Source: https://www.imf.org/-/media/files/publications/weo/2020/october/english/execsum.pdf_