Transcript of April 2020 World Economic Outlook Press Briefing

April 14, 2020


Gita Gopinath , Economic Counselor and Director, Research Department, IMF

Gian Maria Milesi-Ferretti , Deputy Director, Research Department, IMF

Malhar Nabar , Division Chief, Research Department, IMF

Raphael Anspach , Senior Communications Officer, IMF


MR. ANSPACH: Good morning! Welcome to this press conference on the International Monetary Fund’s World Economic Outlook. Thank you for joining us. These are unusual and challenging circumstances. We hope that you and your loved ones are doing well and staying safe. We are doing things somewhat differently this time around. This press conference is entirely virtual. And in that sense, I encourage you to submit your questions via our online press center. Before we take your questions, I am delighted to introduce the speakers of today: with us here in the studio are Gita Gopinath, Economic Counselor and Director the Research Department; Gian Maria Milesi-Ferretti, Deputy Director of the Research Department; and joining us remotely we have Malhar Nabar, Division Chief, Research Department. Good morning, Malhar.

Before we take your questions, I would ask Gita to start off with some opening remarks, and then we'll be happy to go into your questions. Gita, the floor is yours.

MS. GOPINATH : Thank you, Raphael. Good morning, everyone. I hope all of you are doing well and are healthy. I'd like to first start by thanking the numerous doctors, nurses, and first responders all over the world, who are working so hard to keep us safe during these difficult times. Now the world has changed dramatically in the three months since our last update of the World Economic Outlook, in January. A rare disaster, a coronavirus pandemic has resulted in a tragically large number of human lives being lost.

Now as countries implement needed containment measures to control the pandemic the world has been put in a great lockdown. The magnitude and speed of collapsing activity that has followed is unlike anything experienced in our lifetimes. This is a crisis like no other, which means there are substantial uncertainties about the impact it will have on people's lives and livelihoods. A lot will depend on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, variables which are very hard to predict.

In addition, many countries face multiple crises, the health crises, the financial crises, the collapse in commodity prices, especially commodity exporters, and all of these interact in complex ways. Now policymakers are responding in unprecedented manner by helping households, firms and financial markets, however, there is still considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown. So now, under the assumption that the pandemic and required containment peaks in the second quarter in most countries in the world, and then recede in the second half of this year, we are projecting global growth in 2020 to fall to minus 3 percent.

Now this is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period of time. This makes the great lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis. Assuming the pandemic fades in the second half of 2020, and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, we project global growth in 2021 to rebound to 5.8 percent. Now this recovery in 2021 is only partial, and the level of economic activity is projected to remain below the level we had projected for 2021 before the virus hit. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around $9 trillion, greater than the economies of Japan and Germany combined. Now this is a truly global crisis, as no country is spared. Countries reliant on tourism, travel and entertainment for their growth are experiencing major disruptions. Emerging market in developing economies face additional challenges, they face unprecedented reversals in capital flows, major currency pressures, while at the same time coping with weaker health systems and much lower fiscal space to support their economies.

So, for the first time since the Great Depression both advanced economies and emerging and developing economies are in recession. For 2020 growth in advanced economies is projected at minus 6 percent, emerging market and developing economies which typically have normal growth levels well above advanced economies are also projected to have negative growth of minus 1 percent; and minus 2.2 percent if you exclude China. Now income per capita is projected to shrink for over 170 countries. Now we're projecting recoveries for both advanced economies and emerging and developing economies in 2021, but that again is partial. Now what I have described is baseline scenario but given the extreme uncertainty around the duration and intensity of the health crisis, we also explore alternative more adverse scenarios.

The pandemic may not recede in the second half of this year, leading to longer containment periods, worsening financial conditions, and further breakdowns in global supply chains. In such cases global GDP will fall even further by additional 3 percent in 2020; and if the health crisis rolls over in 2021 it can reduce level of global GDP by an additional 8 percent compared to the baseline. Now, moving on to what are the important policy actions that countries need to take. Firstly, on the health front, flattening the spread of COVID-19 using lockdowns, allows health systems to cope with this crisis, which then permits a resumption of economic activity. In the sense there is no tradeoff between saving lives, and saving livelihoods, countries should continue to generously support their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies. A global effort must ensure that when therapies and vaccines are developed both rich and poor nations alike have immediate access. Now while the economy is in shutdown, policymakers will need to ensure that people are able to meet their basic needs and their businesses can pick up once the acute phases of the pandemic pass.

The large, timely and targeted fiscal, monetary and financial policies already taken by many policymakers have been lifelines to households and businesses. This support should continue throughout the containment phase to minimize persistent scars that could emerge from subdued investment and job losses during this deep recession. Policymakers must also plan for the recovery, as containment measures come up, policies should shift swiftly to supporting demand, incentivizing from hiring and repairing balance sheets on private and public sectors to aid the recovery.

Now fiscal stimulus that is coordinated across countries that have fiscal space will magnify the benefits for all economies. The moratoria on debt payments and debt restructuring may need to be continued during the recovery phase.

Now multilateral cooperation is vital to the health of the global recovery. To support needed spending in developing countries bilateral creditors and international financial institutions should provide concessional financing, grants and debt relief. Collaborative effort is needed to ensure that the world does not deglobalize, so that the recovery is not damaged by further losses to productivity.

At the International Monetary Fund, we are doing our part. We are actively deploying $1 trillion lending capacity to support vulnerable countries, including through rapid-dispersing emergency financing, and debt service relief to our poorest member countries, and we are calling on official creditors to do the same.

Now there are some hopeful signs that this health crisis will end. Countries are succeeding in containing the virus using social distancing practices, testing and contract tracing, at least for now. And treatment and vaccines may develop sooner than we expect.

But in the meantime, we face tremendous uncertainty around what comes next. Commensurate with the scale and speed of the crisis, domestic and international policy responses need to be large, rapidly deployed and speedily recalibrated as new data becomes available.

The courageous actions of doctors and nurses around the world need to be matched by policymakers so we can jointly overcome the crisis. Thank you.

QUESTION : “ this is the deepest recession since the Great Depression of the 1930s, but how deep was debt, to clarify the comparison? And countries will be left with dangerously high levels of debt. Will we need to see a period of high taxes once the crisis has passed to bring debt back to sustainable levels?”

MS. GOPINATH : So, during the Great Depression, so if you look at the period between 1929 and 1932, for advanced economies, the contraction was around 16 percent. And in this recession that we're seeing right now, the contraction for advanced economies projected is around 6 percent. So, clearly, the magnitude of the collapse was much worse during the Great Depression.

Now, in terms of world, the global output, of course, data was more scattered at that time during the Great Depression, but the numbers that are out there are about a contraction of about 10 percent globally. And right now, we have the contraction projected for about 3 percent. This crisis requires timely action by governments, and that involves spending on the health sector, on firms, on households, and that can be quite substantial. So, we are projecting debt levels to go up quite significantly over this next 12 months. The question is what happens next.

Now, because we have a recovery, we're projecting for 2021, our debt to GDP levels will stabilize going forward. And the question is how do you bring that down or how do you finance that. As long as interest rates remain very low, as we're seeing, and we get the recovery that we're projecting, then the combination should help in bringing down debt levels slowly over time. Now, there will be some countries in the world that would require help, external aid, you know, debt restructurings, but we'll have to see what this looks like once we come out of this pandemic.

QUESTION : “The World Economic Outlook only considers downside alternative scenarios, not upside. Is that a sign of the times that we're living in that things are expected to be bad and can only get worse from here?

MS. GOPINATH: I think the best description of the sign of our times is the tremendous uncertainty about the outlook going forward. Downside risks prevail right now if you look at the development around the world. Now, of course that said, there could be positive news. There could be a new vaccine or new therapeutics developed very quickly and things could turn much better. But right now, as we see it, downside risks prevailing. So, we have explored the scenario where the pandemic instead of receding in the second half of this year which is what is assumed in the baseline continued, and even worse, that there are outbreaks in 2021. If that happens, you can get a further substantial hit to global growth.

QUESTION: “What are the Fund recommendations for governments to assure a solid recovery when the pandemic is over, especially for advanced economies?”

MS. GOPINATH: Firstly, it's going to depend a lot on what governments do now during this period of containment. So, it's very important that during this period of containment governments provide the necessary support, economic support that's required for households so that they can meet their expenses, for firms, businesses to prevent them from going bankrupt and becoming -- you know, exiting the market. So those measures are very central alongside, of course, important health measures to actually contain the virus.

Once the recovery happens and we are past the pandemic phase, for advanced economies, it would be essentially to undertake a broad-based fiscal stimulus. And this would be even more effective if it were coordinated across all the advance economies across the world. So that would be one important step. Monetary policy should, of course, be data driven. And if inflation stays well below targets, interest rates should also stay low for that period of time. And, you know, given that we've lived through this crisis, it's very important to prepare and to prevent something like this from happening again. So, this would require building health systems around the world, even more sharing of knowledge, and being better prepared the next time around.

QUESTION: “Though China is gradually resuming normal economic activity, China will still be influenced by the supply and demand disruptions of the rest of the world due to the containment measures. How is the Fund evaluating this as an impact on China's economy? Given this factor, will China's recovery be more of a U shape or a V shape?”

MS. GOPINATH: So, China was worse hit in the first quarter when it was the epicenter of the pandemic. In the second quarter, measures have started to come out, containment measures started coming out. It was the end of the first quarter. And so, we are seeing signs of recovery. But, again, we have to keep in mind that the rest of the global economy is now in the grips of the pandemic. And there are severe containment measures around the world, so that would have a big negative impact in terms of external demand on China's growth.

I'd like to bring in Malhar over here, if he would like to add something to this question. Malhar?

MR. NABAR: Good morning, everyone. I think the Chinese, as you pointed out, Gita, that the first quarter contraction and activity is expected to be quite severe. But it's important to recognize that there are signs of normalization now. The economy is getting back to operating. It's a very gradual normalization.

The economy has policy space to support the recovery. With the spread of the pandemic to other regions, especially important trading partners, there are going to be strong global headwinds to the recovery for China. But overall, with the momentum the economy had going into this crisis and the policy space that the economy has, we think it's poised to register positive growth this year, albeit modest positive growth relative to the strong growth rates that we've been accustomed to seeing from the Chinese economy in the past.

QUESTION “How do you see the economic fallout of COVID-19 in the low-income or poor countries like Nepal? What recommendations do you have for them to revise their economy after their health crisis subsides?”

MS. GOPINATH: Countries that are low-income countries, the challenges of this crisis are just manifold. On the one hand, they have to deal with a health crisis with health systems that are not as strong as in the advanced world. They have lesser fiscal space to do the kinds of spending that is required. Now, for a country like Nepal where tourism is an important source of revenue, this is a big hit. Because one of the sectors that has been most hit during this crisis is travel, tourism, hospitality, entertainment. What should countries like this do? I think at this point in time, it is important to do whatever it takes on the health front, to make sure that the necessary spending is done. It's also very important to support your workers. Now, many of them in the informal sector. That would require using mechanisms like cash transfers, using, you know, digital payment systems in countries that have those to reach the daily workers who work on daily wages. And at the same time, support small and medium scale enterprises, so that once this pandemic ends and there is a resumption of global activity in all parts of the world that these countries can also improve. I also would like to mention that for low-income countries that have high levels of debt burden, it is very important for creditors around the world, official creditors for around the world to step up and provide debt relief to these countries.

QUESTION: “I would like to know why the 2020 recession you're forecasting for the Euro Area is worse for that region than other regions?”

MS. GOPINATH: There are a number of variables involved there. So, one, of course, is if you, for instance, compare the Euro Area numbers to what we have for the U.S. The Euro Area started with lower projected growth, even in 2019, compared to the U.S. And so that's why the numbers look much lower now, though the regions are approximately in the same ballpark.

In addition, you see compared to many other parts of the world, Europe has been hit very hard by this crisis. And that is also another factor that plays an important role. I'd like to bring in Gian Maria here to see if he would like to add something.

MR. MILESI-FERRETTI: No, I think you've touched on the main thing. It's really the severity of the epidemic. And, in a sense, we are in a position where we are seeing now the pandemic slowing in Europe, but we are a bit ahead of where, unfortunately, other countries may be heading. So, we've really seen the worst hit to global activity, and that is fully reflected in our current forecast. That's the main reasons for the relative pessimism compared to other regions in the world. Also, Europe is a very open -- European countries are very open to international trade. Many of them have, actually, despite their size, quite a heavy reliance on tourism. Those are all sectors that are hit very heavily by the crisis.

QUESTION: “Given the huge increase in debt and deficits, how concerned are you about the future growth potential, especially for Italy, Spain and France?”

MS. GOPINATH : You know, this crisis and we have to first start by reminding ourselves of that this crisis is a truly exogenous shock and it calls for countries to step up and do the needed spending that’s required in the health sector, for firms, for people. So those deficits are called for. What would this look like going forward? A lot again depends on the interest rates at which countries are borrowing and the interest rates at which they would have to roll over. Now in the Euro area, the substantial support being provided by the ECB on this front is helping keep borrowing costs low for many countries, including Italy and Spain. And as long as that is the case, going forward, once there is a recovery, we should see these debt levels coming down.

Now of course, there is a tremendous uncertainty about this crisis. There could be much worse outcomes. There could be much greater vulnerabilities across the board including in the banking sector and one has to keep a close eye on that.

QUESTION : “So how does the U.K.'s economic response compare to other nations and would you encourage the U.K. Treasury to do more to support businesses and the economy?”

MS. GOPINATH : The U.K. has done, has taken a very aggressive approach. They’ve come in with large, substantial, very carefully targeted measures. So, they have done all the right things at this point. Considerable support to firms and to households and to the financial system. I'd like to bring in Gian Maria if you would like to add something.

MR. MILESI-FERRETTI: No, absolutely. It has been a very powerful response both from the Treasury and from the Bank of England. This is absolutely essential to allow the economy to restart. I would like also to refer back to something that Gita said earlier in her reopening remarks. We need -- governments have responded very aggressively as they should have. They also need to be very nimble and able to adjust their response to the changing environment as, you know, we are learning, you know, things about how the epidemic spreads, about how long the epidemic will be with us and policies need to be adjusted accordingly.

QUESTION : "How does the OPEC agreement change your view on the MENA Region and the Russian outlook?”

MS. GOPINATH: The oil price collapse that we have seen recently is a combination of the, a sharp drop in demand coming out of this coronavirus crises and also the breakdown of OPEC Plus negotiations. Of course, it's in the benefit of the world that we have much less volatility in oil prices, that these markets stay more stable. We are assuming in our projections that the price of oil will be around $35 for 2020 and around that level for 2021 and then go back up to $45. So that is still well below the prices that we say pre-virus and that has an important impact on countries that are oil producers. For that I'll bring in again Gian Maria if you would like to comment on Russia and MENA.

MR. MILESI-FERRETTI: Yes. Well, obviously the main factor that has been driving oil prices down has been the collapse in demand for oil as transportation, you know, car transportation and especially air travel have come down very, very sharply. And the world was running fast out of storage space really to store oil that was being produced but not consumed. Obviously to the reduction, the promised reduction in supply is going to help stabilize the market but the forecasts that we currently have are based on a path of oil prices which is quite similar to what you see embedded currently in futures prices. For oil exporters, obviously weakness in oil prices implies lower fiscal revenues, hence lower, either lower spending by the government, lower support of the non-oil sectors, lower revenues flowing to that sector and hence lower growth. The, on the other side of course, the redistribution favors oil importers, but the risk is that vulnerable oil exporters will be forced to very drastic reductions in aggregate spending and demand and that could weigh on global economic activity.

QUESTION: “First question is for the U.S., what sort of a recovery are you expecting next year? Could this be a V or a U shape recovery or even a check mark? And do you expect it to reach pre crisis levels by the end of other year or in early 2021?”

QUESTION: “What are the implications for post crisis growth rates of the enormous increase in debt being taken on in the U.S. and other advanced economies?”

MS. GOPINATH: The, on the U.S. projection in terms of the baseline is for growth to contract by 5.9 percent in 2020 and then grow by 4.7 percent in 2021. Now if you add those together, what that tells you is that we are projecting in terms of levels for economic activity to be still below the pre virus trend even in 2021. We think it highly unlikely that you will be back to trend in, by the end of 2020. Now of course if there was more positive news that comes about very quickly, we could see big changes in 2021. Things could be better than what we have. But this is a deep recession. It is a recession that involves solvency issues. It is the -- it is everything that involves unemployment rates going up dramatically. And these tend to leave scars and while there are many very strong policy actions being taken, some of this will spill over into other second half for this year into 2021. On the question of debt, there has been sizable fiscal expansion as is required in at this time but again, the U.S. is able to borrow at very, very low rates. We have had this experience before when during the global financial crisis, there was a big increasing debt in the U.S. but that came down quickly in terms of a ratio of GDP once the crisis started abating. Something similar could happen this time round. There could be an increased, with the kind of growth projections we have and the kinds of interest rates we are foreseeing going forward, we could see an improvement in the debt trajectory once the recovery starts.

QUESTION : “The IMF projects that Brazil will grow 2.9 percent in 2021. This growth is below that of other countries in the region such as Chile and Peru. Why does the IMF consider that Brazil will grow less than other Latin American countries? And the second question is, does the IMF advise that Brazil continues with its economic reforms regardless of the economic impact produced by COVID 19?”

MS. GOPINATH : Brazil has been hit by multiple shocks, so it is, its ben hit by the collapse in commodity prices, it's been hit by slowing global growth especially in its trading partners including in China recently. And of course, the epidemic in Brazil itself is leading to serious domestic disruptions. So, all of these factors combine together to produce the estimate that we have. If not in terms of economic reforms in Brazil, again, those are important from a medium-term perspective but at this point of course, the priority as in all countries in the world is to deal with this pandemic crisis. See if Gian Maria would like to add anything.

MR. MILESI-FERRETTI: Just a couple of quick things. One is of course that something Gita stressed in her opening remarks that we stress in the WEO. We have extreme uncertainty about forecasts. We are talking about really an unprecedented crisis for economic forecasting is already a pretty tricky business in normal times. Under these circumstances with a lot of uncertainty coming from factors completely extraneous to pure economics, the problem is magnified.

One should also take into account in assessing how a country does, the importance of the external environment and the importance of what is, what was happening in the country before. So, we need to take into account that Chile and Peru were countries that had stronger economic performance to start with. The size of the revisions is actually relatively similar. And, of course, we very much hope to be wrong. We very much hope that the recovery is going to be stronger than we currently predict, that science will come up with solutions to this crisis that will allow economic activity to restart earlier than we currently anticipate and with more strength than we currently anticipate.

QUESTION: “To which extent does inequality and informality limit the effectiveness of government actions in Latin America?

MS. GOPINATH : Factors like informality make it much harder for any country that has to deal with this crisis. So, if you look at how this crisis plays out, so the main sectors get affected because of the containment measures that are in place are entertainment, hospitality, transportation and several of these have very high levels of small and medium enterprises that make up these sectors and a very large fraction of them are informal workers especially in the developing and emerging world. So, to be able to deal with this crisis and to get assistance to into the hands of the people that need it the most can be a particular challenge in these times and in countries that have large informality. So, here is where you have to think out of the box. Countries have social assistance programs in place. They should broaden the scope of it. They should make it more unconditional. So, use existing schemes that exist in these countries to make sure that you reach out to these people and you get money in their hands as soon as possible and this is a crisis that unfortunately affects the poor severely, those on daily wages, and therefore, you have to think of transfer that are both in kind, in cash, broaden the scope of existing schemes, make it more unconditional, so these are the things that would help.

QUESTION: “Would the shortages in medical supplies some countries have implemented export restrictions? Do you think that COVID-19 pandemic is leading to growing protectionism? Are you concerned about that the damage that it could bring?”

QUESTION: “Does the COVID-19 pandemic hold the potential to reverse globalization at least partially? What could be the ramification of that?”

MS. GOPINATH: We call on all countries to refrain from putting restrictions on exporting medical supplies. It is really essential, and this is the one, you know, one of the many areas where global cooperation is necessary. This is not a time to restriction the trade of medical supplies and essential equipment around the world.

You know, these are difficult times in terms of globalization for dealing with this pandemic. There has been a restriction on travel of people around the globe. There has been because of the fact that people cannot go to work, the factories, there has been a breakdown of global supply chains, so this is a result of this crisis that we have seen. But it is very important that this does not become a feature where we reverse all the gains that we have got from globalization.

Now, the world needs a healthy recovery, it needs a strong recovery, and that will not come about if the world deglobalizes because that would severely reduce productivity in the world and that’s the last thing that we want at this time.

MR. ANSPACH: With that, I would like to thank our speakers today, Gita, Gian Maria, Malhar, who joined us remotely, and also, thank you for joining us and hoping you’re well and you stay safe. Thank you very much.

IMF Communications Department

PRESS OFFICER: Raphael Anspach

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