Group of Twenty IMF Note — Finance Ministers and Central Bank Governors' Meetings

G-20 Surveillance Note

July 18, 2020

The Following executive summary is from a note by the Staff of the IMF prepared for the July 18, 2020 G-20 Finance Ministers and Central Bank Governors' Meetings, Virtual Meeting.
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Executive Summary

The pandemic has entered a new phase. Covid-19 continues to spread, though at varied speeds across countries. Some advanced economies initially hard-hit by the crisis have stabilized or reduced infection rates, while some emerging market economies are seeing fast transmission. Mobility restrictions are generally being eased but social distancing is likely to prevail for some time.

Global economic activity is starting to recover from a very low level. Contact-intensive services have been particularly hard hit, but recent indicators point to stabilization or a slight pickup. Financial conditions have eased on extensive policy support, including for some emerging market economies that are seeing a return of capital inflows. Commodity prices have stabilized or inched up.

Global output is projected to decline by 4.9 percent this year. The markdown since April reflects a deeper contraction during necessary lockdowns than previously anticipated. Inflation has edged down further. A tepid recovery is expected for next year, and potential scarring through bankruptcies and persistent unemployment weigh on the outlook. Poverty and inequality are set to worsen.

Uncertainty remains very high. Activity could pick up faster than expected in economies that have reopened, and medical breakthroughs on treatments and vaccines could lift confidence and activity. Yet, a further spread of the disease could lead to widespread disruption. Stretched asset valuations, political instability, volatile commodity prices, rising protectionism, and natural disasters pose risks.

Policy support has been extensive across most G-20 economies. Fiscal policy provided support to individuals, firms, and the health sector. Amid low inflation, monetary policy was eased decisively through policy interest rate cuts and unconventional measures to help the functioning of markets. Regulators have allowed banks to use capital and liquidity buffers to support lending.

Policymakers must continue providing robust safety nets while ensuring foundations for a resilient and inclusive recovery. Unemployment rates are high and unlikely to return to pre-crisis levels quickly. Provision of adequate unemployment insurance and social protection therefore remains necessary. With continued weak activity, bankruptcies are set to rise, leaving governments with difficult choices on whether and how to support firms. Liquidity provision might be enough for industries where revenue losses appear temporary, while equity injections may be needed for some insolvent firms that are essential for fighting the pandemic or on which many others depend. Moreover, support measures should not hinder the reallocation of workers toward expanding sectors. Alongside, any lifting of lockdown measures should be supported by public health measures to maintain control over the disease. Though policy needs are similar across countries, financial and administrative capacity to implement them vary widely. Economies with less fiscal space will have to prioritize health and social spending.

Collective efforts by the G-20 are essential to end the health crisis and reignite growth. Policymakers must work together to guarantee production and distribution of goods and health supplies essential to fight the pandemic, especially vaccines. Trade restrictions on essential goods should be lifted, as they slow the fight against the pandemic. Developing economies need support to finance critical spending, making all countries safer. Advance planning is needed as the global financial safety net could be further tested. Remaining uncertainties around the G-20 Debt Service Suspension Initiative should be clarified. Without vigilance and collaboration, the pandemic will continue to spread. Every opportunity must be seized to promote a stronger, more inclusive, and greener future.

Prepared under the supervision of Oya Celasun by a team led by Lone Christiansen, comprising Galen Sher (co-lead), Eric Bang, and Shan Chen, and with input from Shushanik Hakobyan. Ilse Peirtsegaele provided administrative support.

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