In words that will ring hollow to the many millions of people around the world who became unemployed this year, the International Monetary Fund (IMF) has predicted that the final bill for the economic carnage caused by the pandemic in 2020 will be less than expected.
Gita Gopinath, the economic counsellor for the Washington-based organisation, said the world’s global economic output was anticipated to fall by 4.4% this year – less than the 5.2% drop that was forecast in mid-year.
Support measures must continue
In a blog post, the IMF notes that said swift action by central banks had softened the impact of the damage to economic activity caused by lockdowns, and warned against the premature removal of support measures.
“The considerable global fiscal support of close to US$12-trillion and the extensive rate cuts, liquidity injections, and asset purchases by central banks helped save lives and livelihoods and prevented a financial catastrophe.”
But before anyone starts breaking out the champagne and asking for their old job back, the organisation points out that the devastation caused by COVID-19 has still been astounding and the worst financial crisis since the Great Depression of the 1930s.
Pandemic is still far from over
In all, the world has lost economic output totalling US$11-trillion in 2020-21, the IMF states. And by 2025, that cumulative loss resulting from Covid is expected to total an eye-watering US$28-trillion.
Of course, the pandemic is still far from over, with another round of rising infection rates happening in many countries around the world.
This has led the IMF to predict that the positive economic rebound it expected in 2021 won’t be quite as good as expected. Instead, the predicted rebound figure of 5.4% next year has been cut to 5.2%.
Prevent mass bankruptcies
“Governments should continue to provide income support through well-targeted cash transfers, wage subsidies and unemployment insurance,” Gopinath said.
“To prevent large-scale bankruptcies and ensure workers can return to productive jobs, vulnerable but viable firms should continue to receive support – wherever possible – through tax deferrals, moratoria on debt service and equity-like injections.”
Of the major advanced economies, the IMF expects the US to be the least affected, with a contraction in output of 4.3%. The worst will be Italy (10.6% contraction).