International Monetary Fund Changed its Economic Forecasts

The state of the global economy was far from being ideal even before the coronavirus reached the majority of the countries. However, the ongoing situation created additional problems for the global economy. Countries even the richest ones are struggling to cope with the economic impact of the coronavirus pandemic. On Wednesday, the International Monetary Fund (IMF) made the decision to change its economic forecasts once again.

The IMF warned that public finances will deteriorate significantly as governments are trying to deal with the coronavirus pandemic. According to the latest data provided by the International Monetary Fund, the organization expects a contraction of 4.9% in the global gross domestic product (GDP) in 2020. As a reminder, several months ago in April, the IMF expected that global GDP would fall by 3% in 2020.

Interestingly, the IMF highlighted the severity of the problem. According to its updated version of the World Economic Outlook, the coronavirus pandemic has had a more negative impact on activity in the first half of this year than expected. Moreover, it will take more time to get the economy back on track.

This is not the end of the story as the fund also downgraded its GDP forecast for 2021. Based on the latest data, it now expects a growth rate of 5.4%. The fund downgraded its forecast from 5.8% to 5.4%.

International Monetary Fund and the global economy

It is worth noting that, the International Monetary Fund explained that the downward revisions were due to social distancing measures, likely remaining in place for the rest of the year. As a result, productivity and supply chains will be affected by such measures.

Moreover, countries still struggling with high infection rates, the fund expects that longer lockdowns would create even more problems for the economy.

Importantly, the Washington-based institution cautioned that due to unprecedented uncertainty it is hard to discuss economic forecasts. Thus, economic activity will depend on factors such as the length of the pandemic as well as voluntary social distancing. Moreover, it is important to take into account the changes to global supply chains and new labor market dynamics.

The fund expects the U.S. economy to contract by 8% in 2020. The previous forecast was 5.9%. Moreover, the International Monetary Fund downgraded its forecasts for the euro zone. According to the updated information, the fund expects the economy of the euro zone to contract by 10.2% in 2020.

Brazil, Mexico, and South Africa are also struggling to cope with problems. The economy of Brazil will contract by 9.1% while the economy of Mexico will contract by 10.5%. The fund also expects the economy of South Africa to drop by 8%.