Kristalina Georgieva. File
Despite some signs of recovery, the global economy faces continued challenges, including the possibility of a second wave of COVID-19, and governments should keep their support programs in place, IMF chief Kristalina Georgieva said on Thursday.
Activity “has started to gradually strengthen... But we are not out of the woods yet,” Georgieva said in a message to G20 finance ministers ahead of their weekend meeting in Saudi Arabia.
The Washington-based crisis lender late last month downgraded its growth forecasts, and now expects global GDP to fall by 4.9 per cent this year due to the deeper contraction during lockdowns than previously anticipated, and only a “tepid recovery is expected for next year.”
The $11 trillion in stimulus provided by the G20 nations helped to prevent a worse outcome, but “these safety nets must be maintained as needed and, in some cases, expanded,” Georgieva urged in a blog post.
She highlighted measures including paid sick leave for low-income families and access to health care and unemployment insurance.
But the recovery faces risks, she said, including the possibility of “a second major global wave of the disease could lead to further disruptions.” While she acknowledged that the “substantial and rising debt levels are a serious concern,” Georgieva said, “At this stage in the crisis, however, the costs of premature withdrawal are greater than continued support where it is needed.” Many countries have moved to reopen, so, “Clearly, we have entered a new phase of the crisis,” she said in a blog post, adding it will require “further policy agility and action to secure a durable and shared recovery.” Many jobs that have been lost amid the pandemic may never come back, so workers will need support and training to move into new sectors.
“The bottom line is that the pandemic is likely to increase poverty and inequality,” she said but noted that policymakers have “a once-in-a-century shot” at building a better, greener and more equitable world.
Lagarde urges quick action: ECB chief Christine Lagarde on Thursday urged EU leaders to do their bit and quickly agree on a huge recovery plan, as governors of the central bank held back from topping up their vast pandemic stimulus to the eurozone economy.
Lagarde said that although economic activity in the eurozone had picked up in recent weeks as lockdowns eased, “uncertainty about the overall speed and scale of the rebound remains high”.
The ECB has launched extraordinary measures to cushion the economic blow from the pandemic, but Lagarde reiterated that governments needed to share the load with fiscal policy efforts.
“A very large number of leaders are perfectly aware of the importance of not wasting time and of being able to signal... that there is a level of consensus and determination to invest together, recover together and support each other,” she said in an online press conference. European Union leaders are meeting in Brussels on July 17-18 to wrangle over a 750-billion-euro fund to help the hardest-hit member states weather the coronavirus crisis.
The fund would be financed through joint EU borrowing and consist mainly of grants.
But the proposal is fiercely opposed by Denmark, Sweden, the Netherlands and Austria who want to rein in the spending and insist on loans rather than grants, making agreement this week uncertain.
Lagarde said however that the volume of the fund should not be cut, and she expects grants to make up “a larger proportion” compared to loans.
Crucially, the fund has the backing of German Chancellor Angela Merkel whose own government has ditched its no-new-debt dogma to unleash 130 billion euros in fiscal stimulus for Europe’s top economy.
On the eve of the EU’s crunch summit, ECB governors decided to leave key interest rates unchanged. They also made no tweaks to their virus-fighting bond-buying schemes worth over 1.3 trillion euros ($1.5 trillion) and left massive cheap loans to banks in place.
No changes had been expected after last month’s governing council powwow, when the ECB expanded its pandemic emergency bond-buying scheme known as PEPP by 600 billion, and extended it until June 2021.
The goal of the government and corporate debt purchases is to keep credit flowing and encourage spending and investment in the 19-nation eurozone.
It comes on top of the bank’s already ultra-loose monetary policy of historically low interest rates, cheap loans for banks and a pre-pandemic bond-buying scheme to the tune of 20 billion euros monthly -- all designed to bolster economic growth and push up stubbornly low inflation.