IMF calls for more international cooperation as the world economy recovers slowly
The IMF’s latest World Economic Outlook sums up the challenges ahead in the report’s title: ‘A long and difficult ascent’. With COVID-19 having already extracted a toll of over a million lives, accompanied by an evisceration of livelihoods and output in economies, prognosticating the economic future even as the pandemic rages on is an unenviable task. The Fund’s economists have gamely 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% this year, reflecting a less severe contraction than the 5.2% drop estimated in June, 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 in the July-September quarter. But the IMF has been prudent in pointing out that even as the world economy ascends out of the depths it plunged to in April, following the worldwide lockdown, there remains the danger of a resurgence in infections that is prompting countries in Europe to reimpose at least partial closures. And 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, magnify the uncertainty.
Pointing 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, and lost schooling impairs human capital’, IMF Chief Economist Gita Gopinath contends that global growth will gradually slow to about 3.5% in the medium term. With the cumulative loss in output relative to the pre-pandemic projected path estimated to more than double to $28 trillion over 2020–25, efforts to improve average living standards are certain to be severely set back. Observing that the pandemic is set to widen inequality between economies and within nations, the Fund has urged greater international cooperation. It is imperative for all countries to work closely to ensure that new treatments and vaccines are made available to all since wider and faster availability of medical solutions could boost global income by almost $9 trillion by end-2025, reducing income divergence, she says. With no visibility yet on vaccine availability, the IMF has also stressed the need for policymakers to persist with direct income support for the most vulnerable and regulatory forbearance for stressed but viable firms. The message is clear. In a world as interconnected as it is today, the cost of economic insularity would only be more protracted pain for all.