The International Monetary Fund (IMF) has downgraded the global growth outlook to 4.9 percent in 2020, 1.9 percent below the April forecast, expecting it to rebound in 2021 to strengthen to 5.4 percent, 0.4 percent lower than the April forecast amid the COVID-19 crisis.
Regarding the GPD growth, the IMF has maintained Egypt’s GDP growth at 2 percent over 2020 and 2021, the same expectation of April forecast to be the only country to achieve positive economic growth during the current fiscal year in the Middle East and North Africa (MENA) region.
According to the IMF April outlook, Egypt’s real GDP growth was forecast to drop to two percent in 2020, down from 5.6 percent in 2019, because of the pandemic, yet the country’s economy could still grow to 2.8 percent in 2021.
In its Global Economic Outlook Report, released on Wednesday, the IMF said that economic growth in emerging markets and developing economies is projected to slow down to three percent, down by two percent from 5April forecast, and to increase to 5.9 percent, down by 0.7 percent compared to the April forecast.
(Source: The International Monetary Fund)
Among emerging markets and developing economies, the hit to activity from domestic disruptions is projected closer to the downside scenario envisaged in April, more than offsetting the improvement in financial market sentiment. The downgrade also reflects larger spillovers from weaker external demand, the report read.
According to the report, the downward revision to growth prospects for emerging market and developing economies over 2020/2021 (2.8 percent) exceeded the revision for advanced economies (1.8 percent).
Excluding China, the downward revision for emerging markets and developing economies over 2020/2021 is 3.6 percent, according to the report.
For low-income developing countries' growth, the report projected it to go down to one percent in 2020, some 1.4 percent below the April forecast, albeit with differences across individual countries.
Excluding a few large frontier economies, the remaining group of low-income developing countries is projected to contract by 2.2 percent in 2020, according to the report.
“For the first time, all regions are projected to experience negative growth in 2020. There are, however, substantial differences across individual economies, reflecting the evolution of the pandemic and the effectiveness of containment strategies; variation in economic structure (for example, dependence on severely affected sectors, such as tourism and oil); reliance on external financial flows, including remittances; and pre-crisis growth trends,” the report read.
In 2021, the growth rate for emerging markets and developing economies is projected to strengthen to 5.9 percent.
Furthermore, the average fiscal response to the pandemic in such economies is now estimated at five percent of GDP, which is sizeable but less than in advanced economies, yet fiscal deficits are projected to widen sharply to 10.5 percent of GDP on average in 2020, more than double the figures in 2019.
This reflects the fiscal expansion, steep output contraction, lower commodity revenues, and higher external borrowing costs, as global financial conditions remain tighter than they were before the COVID-19 crunch despite recent easing, the report stated.
The report also expected government debt to increase to 63 percent of GDP in 2020, continuing its upward trend with a 10 percent surge on 2019.
For low-income developing countries, many of which face tight financing constraints and a less harsh impact of the pandemic, thus far, the fiscal response to the pandemic has been modest, at 1.2 percent of GDP on average, and mostly through budgetary measures, the report estimated.
The report also projected headline deficit for low-income developing countries to widen to six percent of GDP in 2020, two percent higher than in 2019, and much higher for oil exporters.
In this regard, many low-income countries have requested a suspension of official bilateral debt repayment under the G20 Debt Service Suspension Initiative, and 45 countries have sought IMF emergency financing. While these provide temporary relief, elevated public debt, exceeding 48 percent of GDP on average during 2020/2021, has raised sustainability concerns in many countries, according to the report.
Globally, the consumption growth is projected to strengthen gradually in 2021, and investment is also expected to firm up, but to remain subdued.
Consumption growth, in particular, has been downgraded for most economies, reflecting the larger than anticipated disruption to domestic activity because of the crisis, said the report.
“The projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings. Moreover, investment is expected to be subdued as firms defer capital expenditures amid high uncertainty. Policy support partially offsets the deterioration in private domestic demand,” the report said.
The report highlighted the uncertainty that the COVID-19 crisis imposes, saying that similar to the April 2020 projections, there is pervasive uncertainty around this forecast, which depends on the depth of the contraction in the second quarter of 2020 (for which complete data is not yet available), in addition to the magnitude and persistence of the adverse shock.
“These elements, in turn, depend on several uncertain factors, including the length of the pandemic and required lockdowns, voluntary social distancing, which will affect spending, displaced workers’ ability to secure employment, possibly in different sectors, scarring from firm closures and unemployed workers exiting the workforce, which may make it more difficult for activity to bounce back once the pandemic fades, in addition to the impact of changes to strengthen workplace safety“, the report said.
Global trade will suffer as well a deep contraction of 11.9 percent in 2020, reflecting considerably weaker demand for goods and services, including tourism, according to the report.
With the gradual pickup in domestic demand in 2021, the report projected trade growth to increase to eight percent, the report expected.
On the other hand, the IMF has generally revised the global inflation projections downward, with larger cuts typically in 2020 and for advanced economies, which reflects a combination of weaker activity and lower commodity prices, although in some cases partially offset by the effect of exchange rate depreciation on import prices.
In this regard, the report expected Inflation to rise gradually in 2021, consistent with the projected pickup in activity, adding that its outlook remains muted due to expectations of persistently weak aggregate demand.
Short link: