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IMF downgrades world economy growth outlook citing ‘more negative impact’ of COVID-19

The International Monetary Fund (IMF) on Wednesday (June 24) said it projects global growth at -4.9%, which is 1.9 percentage points below its April forecast.

“The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” IMF said in a statement.

The adverse impact on low-income households will be particularly acute, said the Fund.

“In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices,” it added.

For countries struggling to control infection rates, the IMF said a lengthier lockdown will inflict “additional toll” on activity.

It recommends “strong multilateral cooperation” as “essential” on multiple fronts.

“Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net,” it said.

It added that policymakers must cooperate to “resolve trade and technology tensions that would harm an eventual recovery from the crisis caused by the pandemic.

Global trade will shrink by 11.9%, said the IMF, considering the weaker demand for goods and services, including tourism. Earlier in June, the United Nations Conference on Trade and Development (UNCTAD) said the international trade in goods is expected to nosedive by 20% this year after a 5% drop year-on-year in the first-quarter. UNCTAD’s forecast is in line with the World Trade Organization’s (WTO) expectation that the decline in international trade this year will be between 13 and 32%.

Among the biggest economies, the IMF expects the United States to grow by -8% this year and bounce back by expanding by 4.5% in 2021.

China is expected to grow by 1% in 2020 and 8.2% in 2021.

Among the biggest Muslim-majority countries, IMF forecasts Saudi Arabia’s economy to contract by 6.8% this year and grow by 3.1% in 2021.

Fellow member of the Organisation of Islamic Cooperation (OIC), Nigeria, is expected to take a 5.4% contraction this year before growing by 2.6% in 2021.

IMF projects a 5.4% global growth in 2021.

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