Transcript of October 2020 World Economic Outlook Press Briefing
IMF News, October 13, 2020
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- Published: October 13, 2020
Global outlook and projections
- Global growth is projected to be -4.4 percent in 2020 (a small upgrade from June).
- Global growth is projected to rebound to 5.2 percent in 2021 (slightly below the June projection).
- After the 2021 rebound, global growth is expected to gradually slow to about 3 1/2 percent in the medium-term.
- 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
- Fiscal support deployed to date is estimated at up to 12 trillion.
- Sovereign debt levels have risen to a record 100 percent of global GDP.
Advanced vs. emerging/developing economies (including China)
- Advanced economies:
- Projected growth in 2020: -5.8 percent
- Projected growth in 2021: 3.9 percent
- Emerging markets and developing economies, excluding China:
- Projected growth in 2020: -5.7 percent
- Projected growth in 2021: 5 percent
- China:
- Output is expected to exceed 2019 levels in 2020
- China is projected to grow cumulatively by 10 percent between this year and next
- Cumulative hit to per capita income over this year and next is projected to be greater for emerging and developing economies, excluding China, than for advanced economies.
Scarring, inequality, and poverty
- Employment has partially rebounded but remains well below pre-pandemic levels.
- Labor market polarization: low-skilled workers, youth, and women have been harder hit.
- Up to 90 million people are expected to fall into extreme poverty just this year.
- The crisis will leave medium-term scars as:
- Labor markets take time to heal
- Investment is held back by higher uncertainty and worsening balance sheets
- Losses in human capital occur
Policy recommendations and IMF actions
- Immediate priorities:
- Maintain fiscal and monetary support and avoid premature withdrawal.
- Greater international collaboration to accelerate development, production, and widespread distribution of tests, treatments, and vaccines.
- Targeted domestic policies:
- Continue income support for households and measures to prevent bankruptcies and job destruction by supporting vulnerable but viable firms.
- Over time, shift policy to facilitate reallocation of resources toward growing sectors (e.g., e-commerce) and away from shrinking sectors.
- Public green infrastructure investment in times of low interest rates and high uncertainty to increase jobs, accelerate recovery, and reduce carbon emissions.
- Support for emerging and low-income countries:
- Prioritize critical spending for health and support for the poor, ensure efficiency.
- Continued international grants, concessional aid, and in several cases, debt relief or restructuring sooner rather than later where debt is unsustainable.
- Medium-term frameworks:
- Complement global easing of monetary policy with measures to prevent build-up of financial risks.
- Adopt medium-term fiscal frameworks to give confidence that debt remains sustainable.
- Invest in health, digital infrastructure, green infrastructure, and education to promote productive, inclusive, and sustainable growth.
- IMF actions reported:
- Provided funding at record speed to 81 members since the start of the pandemic.
- Has granted debt relief and called for extended debt service suspension for low-income countries and reform of the international debt architecture.
Risks, scenarios, and upside potentials
- Downside risks:
- Resurgence of the virus with localized lockdowns; deterioration in prospects for treatments and vaccines.
- Severe financial market turmoil amplified by pandemic developments.
- Growing restrictions on trade and investment and rising geopolitical uncertainty.
- Upside risks:
- Faster and better news on treatments and vaccines or further policy stimulus could significantly improve the outlook.
- If medical solutions are made available faster and more widely relative to the baseline, it could lead to a cumulative increase in global income of almost 9 trillion dollars by end-2025, benefitting all economies and reducing divergence.
- Baseline assumption on pandemic control:
- Based on consultations with public health officials, it is assumed it will take until the end of 2022 to bring down local transmission to low levels pretty much everywhere in the world.
Selected sectoral and country notes
- Oil:
- IMF projections assume oil prices of about $41 a barrel in 2020 and $46 a barrel in 2021 (compared with $61 in 2019).
- Production restraints have moderated the price hit but imply less revenues for oil-exporting countries.
- United States:
- New forecast decline in U.S. GDP for 2020: -4.3 percent.
- The U.S. recovery benefited from very large fiscal and central bank support, which helped stabilize international financial markets and eased financing for emerging markets.
- No serious disruption around the U.S. election is assumed in the baseline.
- India:
- IMF projection for India's growth in fiscal year 2021: -10.3 percent.
- Recommended policy mix: recalibrate fiscal support toward direct spending and tax relief (less reliance on liquidity support/credit guarantees), additional room for monetary ease once inflation spike is under control, and advance structural reforms (labor and farm bills) to improve medium-term growth prospects.
- Sub-Saharan Africa:
- Regional projections: -3 percent for 2020 and -3.1 percent in 2021.
- Heterogeneous impact: severe effects on tourism-dependent economies (e.g., Seychelles, Mauritius), oil exporters (e.g., Nigeria), and diversified economies like South Africa.
- World Bank projection cited: over 20 million people entering extreme poverty this year in Sub-Saharan Africa.
- External financial conditions and access to external hard currency bond markets are key for recovery; IMF support includes concessional financing and debt service relief.
- Latin America and Brazil:
- Brazil: upgrade for 2020 relative to June due to faster recovery after reopening and extended fiscal support; slower recovery into next year partly because of return to fiscal limits and withdrawal of support.
- Latin America overall faces slow recoveries, with some countries returning to pre-pandemic levels only by 2022 or 2023.
- Japan:
- 2020 contraction around -5 percent; recovery slower than peers due to low pre-pandemic trend growth and demographic factors.
- Medium-term projected growth in Japan: about 0.5 percent.
- United Kingdom / Brexit:
- IMF baseline assumes an agreement between the U.K. and the EU.
- Prior IMF estimates: a no-deal Brexit would reduce GDP by 3.5 to 4.5 percent over a two-year period after the no-deal event.
- MENA:
- Region contracted by over 4 percent this year.
- Heterogeneous impacts: oil exporters hit by price decline and production cuts; importers hit via tourism and remittances; fragile states severely affected.
- Recommended response: smarter, targeted/localized lockdowns, strong adherence to mask use, social distancing, and hygiene to limit economic damage from further waves.
Financial stability and outlook comparison
- No global financial catastrophe has occurred so far; massive fiscal and monetary responses prevented a 2008-2009 type global financial crisis.
- The current recession is characterized as the worst since the Great Depression because of the magnitude of the global real shock:
- Global growth this year: -4.4 percent (compared to -0.1 percent in the global financial crisis).
- The Global Financial Stability Report (GFSR) was noted as forthcoming to discuss financial-market and real-economy links in greater detail.
Transcript of October 2020 World Economic Outlook Press Briefing, IMF Communications Department, October 13, 2020.