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Ascent to full recovery likely to be long, uncertain: IMF, United States Of America

0611 - 2020

The ascent to a full economic recovery will likely be long, uneven and uncertain, yet there are some reasons to be hopeful, International Monetary Fund (IMF) deputy managing director Tao Zhang told the 2nd Bund Summit in Shanghai through videoconference recently. Recent data suggest many economies have started to recover at a faster pace than anticipated, he said.

Ascent to full recovery likely to be long, uncertain: IMF, United States Of America

Macro policy support must not be withdrawn before the recovery has gained traction, the IMF official said.

Policymakers will need to look beyond the immediate recovery and make sure that any measures implemented now also serve the longer-term need to help generate more inclusive, smarter and greener growth in the period ahead, he said.

Global growth is projected at minus 4.4 per cent in 2020 and 5.2 per cent in 2021. IMF’s 2020 prediction is less severe than its June 2020 projections.

The revision is driven by a 2.3 percentage point increase in projected growth for advanced economies, reflecting their better second-quarter gross domestic product (GDP) numbers, he said. In addition, China’s return to growth has been stronger than expected in June, and IMF has revised its 2020 forecast for China up by 0.9 per cent.

For many other emerging market and developing economies, however, prospects remain precarious, he cautioned.

The unprecedented fiscal, monetary, and regulatory responses across the world have so far prevented a recurrence of the financial catastrophe of 2008–09 at the global level, he said.

For the Asia-Pacific region as a whole, growth has been downgraded by 0.6 of a per cent from IMF’s June projections. IMF now forecasts a 2.2 per cent contraction for the region in 2020—the most severe contraction in living memory, he said.

Indeed, last October, before the pandemic, IMF had projected the Asia-Pacific region to grow at 5.1 percent in 2020. The expected loss of output in that region is likely to be tremendous and may take years to recover, he said.

Bucking this trend, China’s growth outlook has improved to 1.9 per cent from the June projection of 1 per cent. As the world’s second largest economy, China remains the main trading partner for the region, accounting for more than 20 per cent of the Asia and Pacific region’s total trade. China’s recovery will support growth in the Asia-Pacific region and the rest of the world, he said.

Cautioning that IMF forecast is subject to exceptionally high uncertainty, he said progress on treatments and vaccines might be slower than anticipated and access may be unequal. Economic activity could be lower than expected, with renewed social distancing and lockdowns. And deteriorating financial sentiment could trigger a sudden stop in new lending or result in a failure to roll over existing debt, he added.

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