IMF Lowers Its Global Growth Forecast; Reuters Says UK’s GDP To Shrink Sharply In Q2

Summary

• Global economic output projected to drop by 4.9 percent during 2020 - IMF
• The forecast has been downgraded, as compared to IMF’s projections made 10 weeks back
• UK economy will shrink by 10.2 percent in 2020 as per IMF forecast
• A separate Reuters poll revealed that Britain’s GDP could contract by 17.3 percent in Q2 2020

The International Monetary Fund (IMF) released its World Economic Outlook (WEO) Update for June 2020 on 24 June. It predicted that the global economic growth for the year 2020 will be minus 4.9 percent, worse by 1.9 percent as compared to its own forecast done in April 2020, when it anticipated that the global GDP could drop by 3 percent for the year 2020. The Fund has also said in its outlook that such a crisis has never been seen before, and poses a very uncertain world recovery scenario. The outlook added that in the year 2021, the world economy will grow by 5.4 percent. The recovery numbers have incorporated the assumption that the regions where infection rate is steadily reducing currently, will continue to maintain social distancing in Q2 2020, and will not be witnessing another new wave of rising infections.

Productivity levels have been exceptionally hurt across most businesses due to the advent of the coronavirus pandemic throughout the world, with companies being compelled to put in place the required workplace safety and hygiene measures.

The overall poverty might go up globally, as the low-income households have been the most harshly impacted with the advent of COVID-19 flu across various nations, laments the WEO June update.

All the nations need to ensure that their health care systems are up to the mark and can handle the infections, even in countries where they have started to fall. Is it expected that the national governments will continue to support their citizens with income supporting measures, to the best of their abilities, especially in the countries where lockdown is still in place. Countries also need to work closely towards strengthening multilateral and bilateral trade arrangements, which will surely be giving a supporting hand to the post COVID- crisis recovery.

Global community also needs to be proactive with the advancements in medical science, health care and protective equipment so that any repeat of a catastrophe of this magnitude is avoided in the future.

UK economy likely to contract by double the global economy’s predicted slump for 2020

The United Kingdom is one of the worst affected nations by the corona crisis. IMF WEO has forecasted the British economy to contract by 10.2 percent for the year 2020, more than double the world economy’s contraction of 4.9 percent. Britain is then projected to recover partially in the next year of 2021, with an output growth of 6.3 percent. Apart from the UK, the nations whose economic output are predicted to shrink by more than 10 percent for 2020 are Italy (12.8 percent), Spain (12.8 percent) and France (12.5 percent) amongst the advanced economies, and Mexico (10.5 percent) out of the emerging markets.

The consumer spending is likely to be particularly battered due to the pandemic. During the Great Depression, another recessionary period of a global magnitude, it was observed that business investments dropped sharply, but the consumers continued to spend, more-or-less as usual. But this time around, people are wary of moving out of their homes, fearing that they might catch an infection, and this has marred the demand drastically. Nobody seems to be buying. Secondly, people are saving more for the dubious future.

The UK government is undertaking a lot of social distancing measures to contain the spread of the COVID virus. It has also provided financial stimulus to businesses in terms of loans. Employment has been cushioned through the furlough and self-employment schemes. Trials are underway at the Oxford University to develop a vaccine against corona disease, as soon as possible. Rishi Sunak has remarked that due to the various government support measures adopted, the country is safely opening up at a remarkable pace.

Results of the Reuters poll of economists

In a separate poll by Reuters, the results of which were released on 25 June, 80 economists were interviewed about the prospects of British economy during second quarter i.e. April to June 2020 period. The results of the survey are startling and reveal that the UK’s GDP will fall by 17.3 percent during Q2 2020. It will drop by 19 percent in a worst case scenario, it added.

The survey findings also emphasized that the central bank of the country should roll out further quantitative easing (QE) measures in the coming months. The Bank of England had release a QE stimulus worth £100 billion on June 17, 2020, through the purchase of government bonds. Poll findings also highlighted that the interest rates are not expected to change before the year 2023. BoE had pegged the interest rates at an all-time low rate of 0.1 percent in March 2020, to provide a boost to corporate investments. Most of the respondents also said that the Brexit transition period should be extended, which ends in December 2020.

According to the latest government data, the UK economy shrunk by 20.4 percent in April 2020 and by 5.8 percent in March 2020. So these projections by IMF and Reuters poll seem to be in line with the reality.

In sum, the IMF has downgraded its projections about the global economy, and expects it to slow down by 4.9 percent in 2020. The path to global economic recovery is not going to be easy, since this type of crisis has never been seen before. Britain is expected to showcase a worse downfall, of 10.2 percent for 2020. There is no doubt about the fact the UK economy is one of the worse hit economies due to the unprecedented corona pandemic. However, the government is leaving no stone unturned to revive its businesses and support employment levels. The recovery in the country is dependent on maintaining proper distancing and hygiene measures, and the economy opening up cautiously, apart from other dynamic market forces.