Notes on the IMF World Economic Outlook, June Update

On the 8th of January this year, this is how I opened the post for that day:

“Five links today to articles that were written recently about how things might pan out in 2020. Sticking one’s neck out and making predictions is difficult enough for relatively small issues – trying to guess where the global economy might end up is something I would never want to do. Kudos to those who try!”

Note to self: forecasting the global economy is an impossible task. Never forget!

All that being said, the International Monetary Fund came up with a June update to their April forecast. And (surprise, surprise) it doesn’t make for pleasant reading. What follows are passages I highlighted while reading the PDF, and in some cases, my comments below.

  • “Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.”
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    My guess (not a forecast) is that this will be revised downward further still. I hope I am wrong. My reasons for being so pessimistic? One, I think we still underestimate how difficult it will be to reopen, and even if the economy reopens, parts of the world will need to enter lockdowns of varying intensity for a long time to come. Planning with such uncertainty in mind will prove to be difficult. Also, rebuilding supply chains while not prioritizing for efficiency is desirable, yes. But it’s not easy!
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  • Also, uh, China will not take any attempted rebuilding of these supply chains lying down. Ask us Indians about it!
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  • “The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.”
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    The distributional consequences are going to be bad, and quantifying them will keep economists occupied for a very long time. But dealing with this is not going to be easy.
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  • “As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast.”
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    Duh.
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  • “For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity.”
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    This applies to us here in India, and again, dealing with this is not going to be easy.
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  • “The pattern reflects a unique combination of factors: voluntary social distancing, lockdowns needed to slow transmission and allow health care systems to handle rapidly rising caseloads, steep income losses, and weaker consumer confidence”
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    Truly a crisis like no other, this one. As I mention in tomorrow’s post, this is neither a supply not a demand crisis. Macroeconomics will have to, yet again, update itself.
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  • “Nonetheless, according to the International Labour Organization, the global decline in work hours in 2020:Q1 compared to 2019:Q4 was equivalent to the loss of 130 million full-time jobs.”
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  • “The synchronized nature of the downturn has amplified domestic disruptions around the globe. Trade contracted by close to –3.5 percent (year over year) in the first quarter, reflecting weak demand, the collapse in cross-border tourism, and supply dislocations related to shutdowns (exacerbated in some cases by trade restrictions).”
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    One of my biggest worries is that politics, both domestic and international, will likely make this much, much worse in the days to come.
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  • “An important assumption is that countries where infections have declined will not reinstate stringent lockdowns of the kind seen in the first half of the year, instead relying on alternative methods if needed to contain transmission (for instance, ramped up testing, contact tracing, and isolation).”
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    Neither citizens nor governments – at least in India – have the appetite for a lockdown that was as strict or as long as the one that lasted through until the end of May. In a sense, we have used up that particular strategy. Limited lockdowns, and intensive ones in those areas where there are outbreaks, will be the way forward. This, unfortunately, will not be as effective, and we will therefore live in a stop-start world for a while.
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  • “For the first time, all regions are projected to experience negative growth in 2020. There are, however, substantial differences across individual economies, reflecting the evolution of the pandemic and the effectiveness of containment strategies; variation in economic structure (for example, dependence on severely affected sectors, such as tourism and oil); reliance on external financial flows, including remittances; and pre-crisis growth trends.”
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    Same cause for the disease, in other words, but the treatment must necessarily be different. Not just across countries, but also within them. What works for Maldives will not work for India, for example, and what works for Goa won’t for Maharashtra. An argument, if you will, for policy to operate at more local levels.
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  • “Moreover, with widespread school closures in about 150 countries as of the end of May, the United Nations Educational, Scientific and Cultural Organization estimates that close to 1.2 billion schoolchildren (about 70 percent of the global total) have been affected worldwide. This will result in significant loss of learning, with disproportionately negative effects on earnings prospects for children in low-income countries.”
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    Left unstated is the social impact of being cooped up at home, and on the entire family, not just children. The economic consequences – now and in the future – will be important.
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  • “Development of a safe, effective vaccine would lift sentiment and could improve growth outcomes in 2021, even if vaccine production is not scaled up fast enough to deliver herd immunity by the end of 2021.”
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    Last mile delivery of vaccines will take longer than most people think, and an improvement in “sentiment” might lead to unanticipated consequences.
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  • “Beyond the pandemic, policymakers must cooperate to address the economic issues underlying trade and technology tensions as well as gaps in the rules-based multilateral trading system. The eventual recovery from the COVID-19 crisis would be endangered without a durable solution to these frictions.”
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    Agreed! But color me sceptical on this panning out well.

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