By Zhang Tao
THE key point about the near-term outlook is that the global economy is recovering. But we should keep two things in mind. First, although the recovery following reopening in May is better than our forecast in June, a global recession for 2020 overall is a foregone conclusion. We expect the global economy to shrink by 4.4 percent in 2020. Second, although growth in 2020 looks better than expected earlier, the prospects for the global economic recovery remain quite uncertain: we don’t know how consistent the pace of the recovery will be or how synchronized it will be across regions.
The upward revision of our (IMF’s) global economic forecast relative to the June World Economic Outlook is due to the strong GDP data for the second quarter in major economies such as the United States, China, the eurozone and Japan. Yet China is expected to be the only major economy to maintain positive growth throughout 2020, at 1.9 percent.
Pace of recovery not same for all countries: Data for the third quarter of some countries have been released very recently. For instance, the US grew by 7.4 percent quarter-on-quarter, or 33.1 percent at an annual rate. China grew by 4.9 percent. It is important to note that recent survey data and high-frequency data indicate that the pace of recovery in major economies has diverged, particularly in services. For example, preliminary data for October show that the purchasing managers index for services has strengthened in the US and the United Kingdom while weakening in Japan and some countries in the European Union.
Global performance in the fourth quarter remains to be seen; these outturns may also vary across countries.
In addition, the pandemic in some countries has relapsed on a large scale, which has cast a shadow over the prospects for the next phase of the recovery. Of course, it may be too early to make a conclusion about next year’s growth by looking at the impact of these repeated epidemics.
At the International Monetary Fund, we are emphasizing that the recovery is likely to be a “long, uneven, and uncertain ascent.”. One of the biggest variables is COVID-19, including the effectiveness of policies in curbing its spread going forward. The good news is that the more we know about the virus and coping methods (such as vaccines, medicines and treatments), the stronger our confidence in defeating the virus will be. On the other hand, the recovery of economic activity could be weaker than expected if progress in treatments and vaccine development were to become slower than expected.
Favorable policies needed to boost growth: Since the global outbreak of COVID-19 at the beginning of the year, many countries have responded with massive fiscal, monetary and regulatory supportive measures, the scale and speed of which are unprecedented. These measures have effectively supported the disposable income of residents, while safeguarding corporate cash flow and bolstering banks’ credit supply.
The total global fiscal support has now reached $11.7 trillion, and the monetary authorities of major advanced economies have also provided $7.5 trillion in liquidity support. This support has put a floor under the global economy and helped markets to avoid repeating the experience of the global financial crisis in 2008-09.
Looking ahead, countries will still face many problems and serious challenges that will need to be resolved, including some difficult choices to make. Different countries face different conditions, including in terms of their external environment and their risk tolerance. We believe that in terms of the global economy as a whole, it is important to avoid premature withdrawal of macroeconomic support before the consolidation of the recovery.
In terms of monetary and macroprudential policy, there is a broad consensus that low interest rates will exist for a longer period of time. On the one hand, low interest rates would help in supporting the recovery. On the other hand, they may also contribute to increasing risk appetite, leading to excessive and lower-quality credit. An obvious policy challenge is how we can balance accommodative monetary policy and flexible macro-prudential policies.
Protecting livelihoods is a major challenge: From the perspective of fiscal policy, the challenges are obvious. Protecting livelihoods and preventing long-term or structural scarring to the economy were widely shared objectives during the IMF-World Bank Annual Meetings this year. At the same time, global public debt has reached a record high, accounting for around 100 percent of global GDP.
– The Daily Mail-
China Daily news
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