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‘Worse than WW2’: Major Covid-19 recovery warning

IMF's major coronavirus recovery warning. Source: Getty

The International Monetary Fund has revised its predictions for global output this year, now predicting a deeper recession that first thought.

“Global output is projected to decline by 4.9 per cent in 2020, 1.9 percentage points below our April forecast,” the IMF stated.

“We are now projecting a deeper recession in 2020 and a slower recovery in 2021.”

The IMF said the lockdown had triggered the worst recession since the Great Depression, and its revised forecast reflected worse-than-anticipated outcomes in the first half of the year, and an expectation of more persistent social distancing into the second half of the year as virus cases continue to surge.

And economic recovery won’t be linear, the IMF warned.

“This crisis like no other will have a recovery like no other,” it stated.

“First, the unprecedented global sweep of this crisis hampers recovery prospects for export-dependent economies and jeopardizes the prospects for income convergence between developing and advanced economies.

“We are projecting a synchronized deep downturn in 2020 for both advanced economies (-8 per cent) and emerging market and developing economies (-3 per cent; -5 per cent if excluding China), and over 95 percent of countries are projected to have negative per capita income growth in 2020.”

Global public debt is projected to reach the highest level in record history this year - surpassing the post-World War II peak.

“Countries will need sound fiscal frameworks for medium-term consolidation, through cutting back on wasteful spending, widening the tax base, minimizing tax avoidance, and greater progressivity in taxation in some countries,” it stated.

JobKeeper warning

While economic recovery has been supported by “exceptional” government policy, the IMF warned against removing these support measures too early.

“Given the tremendous uncertainty, policymakers should remain vigilant and policies will need to adapt as the situation evolves,” it stated.

“Substantial joint support from fiscal and monetary policy must continue for now, especially in countries where inflation is projected to remain subdued.”

Then, policy support should gradually shift from being targeted to specific industries, to being broad-based.

“Where fiscal space permits, countries should undertake green public investment to accelerate the recovery and support longer-term climate goals,” the IMF stated.

“To protect the most vulnerable, expanded social safety net spending will be needed for some time.”

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