IMF sees deeper recession this year

Azlan Othman

The International Monetary Fund (IMF) is projecting a deeper recession in 2020 and a slower recovery in 2021.

In its World Economic Outlook published last week, the Fund said the global output is projected to decline by 4.9 per cent this year, a 1.9 percentage point below its April forecast, followed by a partial recovery with a 5.4 per cent growth in 2021.

The Association of Southeast Asian Nations (ASEAN)+5 economic growth is expected to decline by two per cent this year by a 6.2 per cent increase the following year.

While no figures were found on Brunei Darussalam, the IMF projected a growth of 1.3 per cent compared to 4.7 per cent in the previous year in its April report, which was in concert with forecast by the Asian Development Bank (ADB) for the sultanate.

For 2021, the IMF has predicted a 3.5 per cent gross domestic product (GDP) growth for Brunei Darussalam.

On the world front, the Fund said these projections imply a cumulative loss to the global economy over two years – 2020-21 – of over USD12 trillion from the COVID-19 pandemic.

The downgrade from April, it said, reflects worse-than-anticipated outcomes in the first half of the year, an expectation of more persistent social distancing into the second half, and damage to supply potentials.

“A high degree of uncertainty surrounds this forecast, with both upside and downside risks to the outlook,” IMF said. “On the upside, better news on vaccines and treatments, and additional policy support can lead to a quicker resumption of economic activities.”

However, it said, “further waves of infections can reverse increased mobility and spending, and rapidly tighten financial conditions and triggering debt distress. Geopolitical and trade tensions could damage fragile global relationship at a time when trade is projected to collapse by around 12 per cent”.

The Fund added, “We are projecting a synchronised deep downturn in 2020 for both advanced economies and emerging market and developing economies. And over 95 per cent of countries are projected to have negative per capita income growth in 2020. The cumulative hit to GDP growth over 2020 and 2021 for emerging market and developing economies, excluding China, is expected to exceed that of advanced economies.”

As countries are reopening, the IMF believed that the pick-up in economic activities will be uneven.

“On the one hand, pent-up demand is leading to a surge in spending in some sectors like retail, while on the other hand, contact-intensive services sectors like hospitality, travel and tourism remain depressed,” it said. “Countries heavily reliant on such (services) sectors will likely be deeply impacted for a prolonged period.”

On a positive note, the Fund sees the coronavirus crisis as “an opportunity to accelerate the shift to a more productive, sustainable and equitable growth through investment in new green and digital technologies and wider social safety nets”.