IMF hints at downward revision of global economic forecasts

The head of the International Monetary Fund on Friday signaled a possible downward revision of global economic forecasts, and warned the United States and China against rekindling a trade war that could weaken a recovery from the coronavirus pandemic.

Kristalina Georgieva, the IMF’s managing director, told an online event hosted by the European University Institute that recent economic data for many countries was coming in below the fund’s already pessimistic forecast for a 3% contraction in 2020.

“With no immediate medical solutions, more adverse scenarios might unfortunately materialize for some economies,” Georgieva said. “It is the unknown about the behaviour of this virus that is clouding the horizon for projections.”

The IMF’s April projection for a 3% contraction the global economy would mark the steepest downturn since the Great Depression of the 1930s. The IMF forecast a partial rebound would follow in 2021, but warned that outcomes could be far worse, depending on the course of the pandemic.

The US economy - the largest in the world - has been particularly hard hit by widespread shutdowns aimed at containing the spread of the virus. US government data on Friday showed the unemployment rate surging to 14.7% last month. The White House said joblessness could hit 20% in May.

The coronavirus crisis has sent US unemployment surging to 14.7%, a level last seen when the country was in the throes of the Depression and President Franklin D. Roosevelt was assuring Americans that the only thing to fear was fear itself.

And because of government errors and the particular way the Labor Department measures the job market, the true picture is even worse. By some calculations, the unemployment rate stands at 23.6%, not far from the Depression peak of nearly 25%. The Labor Department said Friday that 20.5 million jobs vanished in April in the worst monthly loss on record, triggered by coast-to-coast shutdowns of factories, stores, offices and other businesses.

The breathtaking collapse is certain to intensify the push-pull across the US over how and when to ease stay-at-home restrictions.

President Donald Trump has threatened to punish China for its handling of the virus by imposing new tariffs, and on Friday suggested he could end a Phase 1 US-China trade deal.

Top US and Chinese trade officials on Friday said they would press ahead with implementing the initial trade deal, but some observers say China’s promised purchases of US goods are running far behind the pace needed to meet the first-year goal of a $77 billion increase over 2017 levels.

On Friday, Georgieva warned that a retreat into protectionism could weaken the prospects for a global recovery at a critical juncture.

Asked how concerned she was that rising US-China tensions could jeopardize the global economy, Georgieva said, “It is hugely important for us to resist what may be a natural tendency to retreat behind our borders.” Reigniting world trade was critical to ensuring a global economic recovery, she said. “Otherwise,” she said, “costs go up, incomes go down, and we will be in a less secure world.”

Georgieva said the IMF had already provided emergency funding to 50 of the 103 countries that had requested aid. Poor countries remained at high risk given a sharp drop in remittances and falling commodity prices, even if mortality rates from the virus were lower than in some richer countries.

The IMF’s chief economist, Gita Gopinath, told an event hosted by the Council on Foreign Relations on Thursday that the situation had worsened since March when the IMF projected that emerging markets and developing countries would need $2.5 trillion in external financing to manage the health and economic crisis.

“This crisis is likely to last longer,” she said. “And so the needs will go up, even above that number.”

Meanwhile, the International Monetary Fund on Friday said it would back Peru’s request for a two-year $11 billion flexible credit line to be used as precautionary financing, as the copper-rich South American nation seeks to contain the coronavirus pandemic.

Citing what it called Peru’s “very strong policy frameworks and track record,” the IMF said Managing Director Kristalina Georgieva intends to recommend that the Fund’s executive board approve Peru’s request in coming weeks.

The board discussed Peru’s request during an informal meeting on Friday and will meet again to vote on the matter in coming weeks.

The world’s second-largest copper producer last week said it would issue a fresh bond worth up to $4 billion to help offset the impact of the coronavirus crisis.

It is looking to underwrite an historic stimulus package worth about 12% of gross domestic product.

Peru on Friday extended a nationwide lockdown until May 24 amid a sharp rise in the number of cases of COVID-19, the respiratory illness caused by the coronavirus. More than 58,500 cases have been reported as of this week, and over 1,600 deaths.

The IMF’s Flexible Credit Line is available to countries with what the Fund regards as strong policies and frameworks. It is intended to safeguard economies against external shocks by providing large, upfront access to IMF resources.

Reuters