Market Overview

In its World Economic Outlook Update, International Monetary Fund (IMF) lowered the forecast for global GDP in 2020. The Fund projects the world’s GDP would decline by 4.9% vs three % that the IMF had expected in its April Outlook. 

Global projections provided by world leading financial institutions are worsening as the pandemic spreads across the world. It may be more appropriate to say that they are becoming more realistic. In January of this year, the United Nations Organisation suggested the world economy would grow by 1.8-2.5% this year against 2.9% in 2019. In mid-March, when the pandemic had just squeezed the entire world, Standard & Poor’s said that the global GDP would rise by 1-1.5% in 2020. Negative projections appeared only in April. Fitch became one of the first global financial institution that saw a decline by 1.9% this year. The Bank of America (BofA) came out with a 2.7% decline of the global GDP in 2020, and IMF saw a decline by tree % just after BofA’s forecast. Now IMF has lowered its own estimates again.

According to IMF’s recent outlook, developed countries could suffer more that the average figure. The United States may see a decline of its GDP by 8%, the United Kingdom and Eurozone – by 10.2%, including Germany – by 7.8%, France – 12.5%, Italy and Spain – 12.8%.

The IMF also lowered its outlook for the 2021. Thus, the Fund expects the global economic recovery in the next year will run with a slower pace that was anticipated before. IMF estimates that the global growth in 2021 would be at 5.4% against 5.8% expected by the Fund in April.

The downgrade of the forecast probably happened amid lower than expected and less gradual recovery of business activity throughout the world. The economic data released in recent months in most countries turned out to be rather disappointing. Besides, the risks of a second wave of the pandemic is rising as new virus outbreaks have been recorded in some districts of Beijing, a rise of newly registered cases in some of the U.S. states have been recorded, and a raging pandemic is currently underway in Brazil and other parts of Latin America.

All the above mentioned facts are forcing some economists to reconsider their economic perspectives. In this light, it may be wise to listen to IMF’s warnings and to accept its estimates of the economic state. But, the decline of the world economy may get even worse – by more than five % in case of a wide spread second wave of the pandemic. However, is seems that a second wave could be likely weaker than the first one.

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