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IMF predicts better prospects for global economy — but outlook for emerging markets sours

IMF predicts better prospects for global economy — but outlook for emerging markets sours
(Photo: Unsplash/ Matthew Lancaster)

The International Monetary Fund has revised its forecast for the global economy in its latest World Economic Outlook, predicting a worldwide economic contraction of 4.4% compared with 5.2% in June. This is largely because of better-than-expected rebounds in the US and China. But its view on emerging markets has soured, with 90 million people predicted to fall into extreme poverty this year worldwide.

“While the global economy is coming back, the ascent will likely be long, uneven and uncertain,” International Monetary Fund (IMF) Director of Research Gita Gopinath said in a foreword to the report.

“Indeed, compared with our forecast in June, prospects have worsened significantly in some emerging market and developing economies where infections are rising rapidly.” 

Overall, the global economy is faring better than expected. The IMF now sees an overall 2020 contraction of 4.4% compared with 5.2% previously. The US economy is expected to shrink by 4.3% in 2020 versus an 8% forecast in June and China’s economy is forecast to grow by 1.9%. 

Interestingly, the projection for advanced economies is a 5.8% contraction, while for emerging market and developing economies it is 3.3%. But the IMF warns that many emerging economies are in for a rougher ride. India’s GDP is seen as declining by 10.3% in 2020 and South Africa’s by 8%. 

“For many emerging market and developing economies, excluding China, prospects continue to remain precarious. This reflects a combination of factors: the continuing spread of the pandemic and overwhelmed healthcare systems; the greater importance of severely affected sectors, such as tourism; and the greater dependence on external finance, including remittances,” the IMF said. 

Excluding China, the emerging market contraction for 2020 is seen at 5.7%, followed by a growth rebound of 5% in 2021. 

“The projected rebound in 2021 is not sufficient to regain the 2019 level of activity by next year,” the IMF pointedly noted. So ground will remain lost for some time.

For low-income developing countries — so, the poorest of the poor — the contraction is not seen as large at 1.2%, but the impact will be magnified by their poverty. 

“Higher population growth and low starting levels of income imply that even this more modest contraction compared with most emerging market economies will take a very heavy toll on living standards, especially for the poor,” the IMF said. 

Indeed, it warns that about 90 million people are expected to fall below the threshold of extreme deprivation of $1.90 a day this year worldwide. That is almost double the population of South Africa. The economic wrecking ball that is the pandemic is still wreaking havoc, especially among the most vulnerable. DM/BM

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