The International Monetary Fund (IMF) has downgraded its projections for the world’s economy to 4.9% which is more than 3% from its April prediction.
In 2021, the IMF expects the global economy to grow by 5.4% as compared to 5.8% in its earlier forecast.
The coronavirus pandemic that has greatly affected the global demand for goods and services, influenced this latest forecast report.
Poorer nations dealing with the coronavirus will have a longer economic recovery as lockdowns continue in the worst-hit to global GDP since the great depression.
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According to IMF projections, all regions will experience negative growth this year for the first time. However, there are substantial differences across individual economies.
There’s a larger than expected disruption to domestic appetite for goods and services due to social distancing measures. Hence, the fund expects a reduction in consumption on a global scale.
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Gita Gopinath, Chief Economist at the IMF, last month said “the global outlook is worst than previously expected” and the IMF may downgrade its April forecast based on data it is computing.
Across the world, central banks have announced stimulus plans for up to $11 trillion. This amount is $3 trillion higher than the April estimate. These plans will soften the effects on declining economic activity and limit rising borrowing costs. Moreover, emerging markets’ portfolios have seen a recovery from earlier withdrawals.
According to the Funds, the reduced global GDP could lead some economies into a debt crisis and slow activities further.
The fund warns that the reduction in GDP as a result of the COVID-19 pandemic will widen inequality with over 90% of emerging market economies expected to have a per capita income decline.
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