IMF Sees Worsening Economic Outlook for Emerging Markets

WASHINGTON, KOMPAS.com – The IMF warned that the outlook for many emerging markets has worsened despite a more optimistic forecast for the global economy.

The International Monetary Fund said on Tuesday that the outlook for the global economy is “somewhat less dire” as advanced economies and China have rebounded quicker than expected from coronavirus lockdowns.

The IMF forecasts a 2020 global contraction of 4.4 percent in its latest World Economic Outlook, an improvement over a 5.2 percent contraction predicted in June, when pandemic-related business closures reached their peak.

The International Monetary Fund expects the global economy to return to growth of 5.2 percent in 2021, but the rebound will be slightly weaker than forecast in June, partly due to the extreme difficulties for many emerging markets and a slowdown in the reopening of economies due to the continued spread of the virus.

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Gita Gopinath, the IMF's Chief Economist, said some $12 trillion in fiscal support and unprecedented monetary easing from governments and central banks had helped to limit the damage from the pandemic and support must be maintained.

Even then, ending the worst economic crisis since the Great Depression of the 1930s depends on conquering the virus, she said in a news conference.

"The virus is resurging with localized lockdowns being reinstituted," Gopinath said.

"Now, if this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe and likely amplified by severe financial market turmoil."

She warned of a divergent path between wealthier countries and China, which are recovering more quickly, whereas emerging markets and poorer countries "are headed towards worse futures than advanced economies".

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US, China rebound

The IMF predicted the United States will see a 4.3 percent contraction in its 2020 gross domestic product, considerably less severe than the 8 percent contraction forecast in June.

But the US rebound next year will be somewhat weaker at 3.1 percent growth — a forecast that assumes no additional federal government aid beyond around $3 trillion approved by Congress in March.

The Eurozone's economy will shrink by 8.3 percent in 2020, an improvement from a 10.2 percent contraction predicted in June, but there is wide divergence within the group, the IMF said.

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Export powerhouse Germany will see a contraction of 6.0 percent this year, while Spain's economy, more dependent on tourism, will contract 12.8 percent.

The Eurozone will resume growth of 5.2 percent in 2021, the IMF said.

China, which saw a strong early reopening and rebound from the pandemic, will be the only economy to show positive growth in 2020, of 1.9 percent — nearly double the rate predicted in June — and reach 8.2 percent growth in 2021, its highest rate in nearly a decade, the IMF said.

China, where the coronavirus first surfaced late last year, had reopened most of its economy by April and has seen strong demand for exports of its medical supplies and technology products needed to aid remote working, the IMF said.

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But emerging markets other than China will see a contraction of 5.7 percent in 2020, worse than the 5.0 percent predicted in June.

The International Monetary Fund said the virus was continuing to spread in large emerging markets including India and Indonesia, and those economies are far more dependent on hard-hit sectors including tourism and commodities as well as on remittances and other sources of external finance.

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The IMF also said economic 'scarring' from job losses, bankruptcies, debt problems and lost schooling will hold back medium-term global growth after 2021 to about 3.5 percent, with a cumulative loss in output of up to $28 trillion from 2020 to 2025 compared to pre-pandemic growth paths.

(Writer: David Lawde | Editors: Andrea Ricci, Paul Simao)

Source: https://www.reuters.com/article/us-imf-worldbank-outlook/imf-sees-less-severe-global-contraction-but-worsening-outlook-for-many-emerging-markets-idUSKBN26Y1PZ