Global Economy, IMF and Historic Contraction

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The world’s largest economy and coronavirus crisis

This week, the International Monetary Fund (IMF) prepares to hold virtual spring meetings. The IMF will release forecasts showing the deepest contraction for the global economy since the great recession.

It is worth mentioning that, according to the latest Brookings-FT tracking index, the global economy has to deal with the worst collapse since the Second World War. As a reminder, the Brookings-FT tracking index for the Global Economic Recovery (TIGER) compares several indicators. Let’s have a look at this index. Brookings-FT tracking index compares several indicators with their historical averages for the global economy as well as for individual countries.

The Brooking-FT tracking index showed historically large declines across financial indicators, real economic data and confidence indicators in March.

Let’s get back to the International Monetary Fund and its upcoming virtual spring meetings. As stated above, as in the case of the Brookings-FT tracking index, the IMF forecast highlights many issues.

It makes sense, as financial markets are in turmoil. Moreover, real economic indicators continue to fall and bankruptcies and job losses will leave deep scars on the global economy. Furthermore, let’s do not forget about confidence indicators.

The global economy, coronavirus and economic forecasts Global economy and historic contraction

Interestingly, three months ago the International Monetary Fund had expected increases in prosperity in 160 countries out of 189 member countries. However, the coronavirus had a dramatic impact on the global economy as well as on individual countries.

Moreover, the IMF Managing Director Kristalina Georgieva said that 170 members would suffer falling output per head in 2020. According to Georgieva, this outlook applied to advanced as well as developing economies.

Furthermore, people should take into account that it will take more time to stabilize the situation due to the lack of coordinated policy response from governments.

Importantly, as can be seen from the Brookings-FT tracking index, only in China are the data stabilizing. However, it is too early to say that the local economy is back on track.

Unfortunately, many developing countries have to cope with multiple challenges at the same time due to coronavirus. For instance, apart from health and economic crisis, countries should find a way to cope with a capital flight worse than in the 2008-2009 financial crisis. Moreover, a sudden slump for their exports represents another challenge to the local economy.

Brookings-FT tracking index and other forecasts

Let’s have a look at other economic forecasts as well. As in the case of the Brookings-FT tracking index, and IMF forecast other economic forecasts point to the most difficult moment for the global economy.

According to the Peterson Institute of International Economics unemployment in the U.S. would reach 20% in the second quarter. Also, the eurozone would suffer a 12% drop in gross domestic product.

Moreover, in the U.K. the National Institute of Economic and Social Research expects that by the end of the second quarter, the output would be 25% lower than at the start of the year. Hopefully, the economy is expected to start the recovery process after suffering a 25% drop in the second quarter.

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