Long road ahead
Through the latest edition of its 'World Economic Outlook', the IMF has scaled back its projections regarding the loss of global economic output for the year 2020. In June, the IMF predicted that global economic output would see a fall of 5.2 per cent in 2020. Now, it has revised its predictions to 4.4 per cent, an improvement that is based on the more developed economies like China bouncing back with a lot more momentum than previously estimated. All, however, is not well as IMF's economic counsellor Gita Gopinath has still estimated the final bill for COVID related output loss at USD 28 trillion over the 2020-25 period.
Gopinath stated that USD 12 trillion worth of global fiscal support had helped cushion the full impact of the pandemic and the lockdowns and warned that any attempt to wean the economy off support measures too early would likely have severe consequences. With China being the only nation in the G20 to see positive economic growth of 1.9 per cent in 2020, for the rest of the world, it is more a matter of limiting the economic drain. Most of the developed economies have managed precisely this through their support measures with the most prominent example being of the US. While previously predicted to see an eight per cent contraction, now the US is expected to see a 4.3 per cent contraction in its GDP. The contraction numbers across the Eurozone vary wildly. Germany will apparently pull through with a six per cent contraction. Spain, a more tourism-based economy, will see a contraction as large as 12.8 per cent this year. As a whole, the Eurozone is expected to face a contraction of 8.3 per cent, an improvement over the previous estimate of 10.2 per cent.
India is one of the economies that has seen weaker GDP output than was expected with the GDP contracting 23.9 per cent in the June quarter, placing India as the worst performer amongst the G20 nations. Overall, the IMF has estimated that the Indian economy will shrink 10.3 per cent in 2020. A slight consolation comes here in the fact that the Indian economy is all expected to strongly rebound in 2021 with an 8.8 per cent increase.
As this report makes clear, nations world over may be in the very same troubled waters but they are not in the same boat. For some, the pandemic and its consequences will be a relatively minor setback to manage with far greater availability of resources. For others, the pandemic will expose long-existing socio-economic vulnerabilities and plunge nations and economies into a spiralling fall downwards. In short, the IMF has warned that the pandemic's most unfortunate side effect would be a partial or near-total reversal of the progress made since the 1990s in reducing global poverty and addressing resource-inequalities. Already, signs are grim. Close to 90 million people could fall into a category of extreme deprivation this year alone. This is nowhere near a clear estimation of the actual losses.
As the IMF has pointed out, the crisis is far from over and its effects in the near and distant future are 'long, uneven and highly uncertain.' After an initial rebound in 2021, the medium-term effects of the crisis — affecting the recovery of the labour markets — will cause a gradual slowing down of the rebound. The long term effects of such a slowdown will likely represent a major setback for worldwide efforts to improve average living standards.
All this goes on to show that the considerable financial support and aid programmes need to be further expanded and likely kept on for far longer than some political leaders would be comfortable doing. IMF's recommendations cover many bases, significantly calling for the drafting of policies that limit economic damage and prioritise healthcare spending. At the same time, the IMF has also called for a move towards creating economies that have stronger, more flexible and sustainable paths of growth that place humanity on the path of hope after this dark interlude.