The “V-shaped” recovery predicted by the International Monetary Fund (IMF) could take years to materialise, particularly in regions hit hardest by the pandemic.
The IMF is now forecasting a massive hit to global growth followed by a sharp recovery in 2021. While former prime minister Kevin Rudd has already noted that this forecast is based on optimistic predictions, others are now also voicing their doubts.
“The practice of referring to V or W shaped recoveries has always been puzzling without specification of the angle, depth and time periods associated with such letter references,” said Amlan Roy, head of global macro policy research at State Street Global Advisors.
“The projections of a deep global recession from the International Monetary Fund’s World Economic Outlook are more worrying for not just economic reasons, but for the social and financial stability of the world.”
The IMF’s forecast leaves out questions of how long lockdowns will last and how quickly economies will emerge from them. It’s highly unlikely that there will be a swift return to business as usual, even in developed economies that are handling the health impacts of the virus comparatively well.
“In a bad scenario, it could lead to a lost decade for many emerging market countries,” Mr Roy said.
“The need of the hour is global coordination to ensure that the lowest deciles of poorest and even rich countries, especially those in the informal sector do not get left behind. The operational logistics of getting resources (food, water, medicines, funds, etc.) in a timely fashion to those who need it most, requires coordination within and across countries – it is a human crisis, not just an economic one.”
India is now facing its first full-year contraction in 40 years after Prime Minister Narendra Modi doubled the country’s lockdown period, while China’s economic data will likely be dismal as the full effect of its quarantine measures becomes clear.
“Advanced economies are generally in a better position to respond to the crisis, but many emerging markets and low-income countries face significant challenges,” said IMF managing director Kristalina Georgieva.
Emerging market economies are also suffering from one of the largest capital outflows ever recorder, with investors removing around $83 billion since the start of the crisis.