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Hope amid uncertainty: On IMF’s World Economic Outlook

  • 17 October, 2020

  • 5 Min Read

Hope amid uncertainty: On IMF’s World Economic Outlook

Context:

  • IMF in its latest World Economic Outlook has called for more international cooperation as the world economy recovers slowly.
  • COVID-19 has already claimed over a million lives. The pandemic has led to the loss of livelihoods and a fall in output in economies.
  • IMF sums up the challenges ahead in the report’s title: ‘A long and difficult ascent’.

News:

  • The Fund’s economists have sought to make forecasts for world output through 2020, 2021 and into the medium term.
  • While the global economy is projected to shrink 4.4% in 2020-21, reflecting a less severe contraction than the 5.2% drop estimated in June 2020, the output is seen rebounding at a marginally slower 5.2% pace in 2021.
  • The IMF has based its revision on “better-than-anticipated second-quarter GDP out-turns, mostly in advanced economies” where activity improved after lockdowns were eased, as well as signs of a stronger recovery.
  • IMF Chief Economist contends that global growth will gradually slow to about 3.5% in the medium term.
  • It is pointed out that the pandemic is set to leave scars well into the medium term as:
    • Labour markets take time to heal.
    • Investment is held back by uncertainty and balance sheet problems.
    • Lost schooling impairs human capital.

Issues:

  • The IMF has pointed out that even as the world economy rises out of the depths it had plunged to; there remains the danger of resurgence in infections.
  • This has prompted countries in Europe to reimpose at least partial closures.
  • The uncertainty is magnified by the risks associated with predicting the pandemic’s progression, the unevenness of public health responses, and the extent to which domestic activity can be disrupted.
  • With the cumulative loss in output relative to the pre-pandemic projected path, efforts to improve average living standards are certain to be severely set back.

Way forward:

  • The pandemic is set to widen inequality between economies and within nations, the Fund has, therefore, urged greater international cooperation.
  • All countries must work closely to ensure that new treatments and vaccines are made available to all.
  • Wider and faster availability of medical solutions could boost global income by almost $9 trillion by end-2025, reducing income divergence.
  • IMF has stressed the need for policymakers to plan out direct income support for the most vulnerable.
  • It has suggested that regulatory restraint is necessary to save stressed but viable firms.

Source: TH

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