The International Monetary Fund slashed its economic forecasts once again on Wednesday and warned that public finances will deteriorate significantly as governments attempt to combat the fallout from the coronavirus crisis.
The IMF now estimates a contraction of 4.9 percent in global gross domestic product in 2020, lower than the 3 percent fall it predicted in April.
“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,” the IMF said Wednesday in its World Economic Outlook update.
The fund also downgraded its GDP forecast for 2021. It now expects a growth rate of 5.4 percent from the 5.8 percent forecast made in April (the positive reading reflects that economic activity will be coming from a lower base following 2020′s heavy contraction).
The Washington-based institution explained that the downward revisions were due to social distancing measures likely remaining in place during the second half of the year, with productivity and supply chains being hit. And in those nations still grappling with high infection rates, the fund expects that longer lockdowns will dent economic activity even more.
The IMF cautioned that the forecasts are surrounded with unprecedented uncertainty and economic activity will depend on factors such as the length of the pandemic, voluntary social distancing, changes to global supply chains and new labour market dynamics.
‘Catastrophic’ hit to labour markets
“The steep decline in activity comes with a catastrophic hit to the global labour market,” the IMF said Wednesday, indicating that the global decline in work hours in the second quarter of the year is likely to be equivalent to a loss of more than 300 million full-time jobs.
“The hit to the labour market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” the IMF said.