‘Definitely not out of the woods’: IMF further slashes estimates for…

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It’s looking more like the worst-case scenario, according to the International Monetary Fund.

The IMF slashed its global growth outlook, estimating global GDP will fall –4.9% in 2020, almost 2% below its April 2020 World Economic Outlook forecast, the IMF said Wednesday. The IMF has called the current recession the worst economic downturn since the Great Depression, noting Wednesday the “COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated,” expecting recovery to be slower than the fund previously estimated.

“We are definitely not out of the woods. We have not escaped the great lockdown,” IMF’s chief economist Gita Gopinath said at a press briefing. “This is a crisis like no other and will have a recovery like no other.”

Meanwhile, the outlook for 2021 isn’t much better. The IMF now projects global growth in 2021 to come in at 5.4%—down from 5.8% in April and over 6% below pre-COVID estimates. Notably, the fund said the “adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.”

Despite some countries beginning to reopen, continued social distancing measures, the negative impact of safety and hygiene standards on surviving businesses’ costs, and “scarring” from massive unemployment and business closures may slow a rebound in economic activity, per the IMF’s grimmer forecast.

Meanwhile, the fund said massive fiscal stimulus measures, which now amount to roughly $11 trillion globally, have helped shore up countries’ economies, but that “sizable fiscal support has further stretched public finances.” The IMF now projects global debt will exceed 100% of GDP this year. The fund notes that policies must now shift to aiding recovery, but that debt load and uncertainty of the virus could limit the effectiveness of further fiscal measures.

Although some countries like the U.S. Are starting to see a rebound in unemployment, the IMF said the decline in activity has taken a “catastrophic hit to the global labor market,” noting the decline in work hours in the second quarter will likely be equal to more than 300 million full-time jobs.

Hit to the U.S. Economy

In the U.S., the IMF projects the economy will take a –8% hit this year—some 2.1% lower than forecasts in April—before recovering 4.5% in 2021. The Fed recently painted a marginally more optimistic picture, estimating the U.S. Economy will shrink by 6.5% in 2020.

Over the past several weeks, the U.S. Has slowly been reopening, but spiking cases in some states and the possibility of reinforcing restrictions could further hamper the country’s rebound and the restarting of economic activity. Mohamed El-Erian, chief economic adviser at Allianz, recently told Coins2Day that “there are difficulties in reopening when it comes to consumer engagement and operational issues on the business side.” Growth and what shape the rebound might take in the U.S. Have been heavily debated in recent weeks.

At a virtual Bloomberg event Tuesday, Treasury Secretary Steve Mnuchin said that while data will show a bad second quarter, “You’re going to see a spectacular rebound off the bottom in the third quarter.”

Meanwhile, economists like Moody’s Mark Zandi note that while initial growth coming out of shutdowns may be strong, “a V-shaped recovery is out of the question. That’s not happening,” he recently told Coins2Day, noting that the virus is doing “meaningful structural damage to the economy.” Even as states reopen, “the economy is going to go sideways until we get a vaccine or therapy that’s widely distributed and adopted,” he said.

On the upside, IMF’s Gopinath said the strength of the economy coming into the crisis should help this recession be shorter and less deep than the Great Depression, and that “better news on vaccines and treatments and further policy support could trigger a faster recovery.” However, “on the downside, further waves of infections can reverse increased mobility in spending and rapidly tighten financial conditions, triggering debt distress,” Gopinath said. She added the cumulative global loss for this year and next is expected to hit $12.5 trillion.

The IMF also took aim at the stock market’s recent performance, saying the “extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects”—a theme investors have been noting for quite some time as U.S. Markets have rebounded roughly 40% since March lows.

Still, the IMF emphasized there was a “higher than usual” level of uncertainty with its projections, as the virus remains unpredictable. On Tuesday, there were over 35,000 new coronavirus cases in the U.S.