IMF revises global growth downward into negative territory

Global growth is set to contract by 3% this year as the coronavirus pandemic and resulting lockdowns push developed and emerging economies into recession.

The International Monetary Fund's latest World Economic Outlook, published Tuesday, revised growth downward from 3.3% as of the January outlook report.

"This is a crisis like no other, and there is a substantial uncertainty about its impact on people's lives and livelihoods," Gita Gopinath, economic counselor and director of the research department at the IMF, said in commentary accompanying the update. She acknowledged that many countries now face multiple crises: health, financial and commodity-related.

"Policymakers are providing unprecedented support to households, firms and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown," she said.

Dubbed the "Great Lockdown," Ms. Gopinath said the COVID-19 related recession is the worst since the Great Depression of 1929 to 1939, and is "far worse than the global financial crisis" of 2008-2009.

The IMF's base case scenario assumes that the global pandemic fades in the second half of the year, with actions by policymakers effective in staving off bankruptcies, extended job losses and systemwide financial strain. That assumption resulted in a forecast of 5.8% growth in global GDP in 2021. The January outlook projected 2021 growth at 3.4%.

Developed market GDP is now expected to be -6.1%, down from 1.6% growth. The forecast for 2021 is now 4.5% growth, up from 1.6% in the previous outlook report.

The U.S. is forecast to contract -5.9% in 2020 before rebounding with 4.7% GDP growth next year. Those figures compare to a projected 2% growth this year and 1.7% growth in 2021, according to the January report.

Eurozone growth is now expected to contract -7.5% but grow by 4.7% next year, compared with previous forecasts of 1.3% growth for 2020 and a 1.4% expansion next year. For the U.K., the growth forecast was revised down to -6.5% from a 1.3% projection in January, while 2021 growth was revised upward to 4% from 1.5% in the previous report.

Japan is now expected to contract -5.2% in 2020, down from a 0.7% growth forecast. Next year, growth is expected to hit 3%, compared with a 1.5% projection in the January report.

Emerging economies are expected to contract -1% in 2020, down from a 4.4% growth expectation in the January report. For 2021 growth is expected to rebound by 6.6%, compared to a previous 4.6% projection.

And China, where the virus was first detected late last year, is set to grow at 1.2% this year, down from a 6% projection in the January report. Next year, China is forecast to grow 9.2%, up from a 5.8% projection in the previous report.

Should the pandemic not recede in the second half of this year, with longer-term lockdowns, worsening financial conditions and further breakdowns in global supply chains, global GDP would fall a further -3% in 2020 than the current forecast, and by a further -8% in 2021.

There are some signs that the crisis will end, however, with some countries containing the coronavirus through social distancing, testing and tracing, Ms. Gopinath said, "and treatments and vaccines may develop sooner than expected."

The IMF on Tuesday also published its latest Global Financial Stability Report.

The current pandemic “poses unprecedented health, economic, and financial stability challenges,” the report said. It highlighted a collapse in the price of risk assets and a spike in market volatility, as well as a surge in borrowing costs amid expectations of widespread defaults.

For money managers, the IMF warned of further outflows and forced asset sales into falling markets.