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IMF upgrades 2020 world growth forecast to 4.4% fall amid pandemic

In this Feb. 14, 2020 file photo, Kristalina Georgieva, Managing Director of the International Monetary Fund, attends a session on the first day of the Munich Security Conference in Munich, Germany. (AP Photo/Jens Meyer)

WASHINGTON (Kyodo) -- The International Monetary Fund projected Tuesday the global economy will contract 4.4 percent in 2020 from a year before, up by 0.8 percentage point from its June estimate, on robust recovery in China and less severe setbacks in many advanced economies amid the coronavirus pandemic.

    The IMF estimated in its update of the World Economic Outlook that the Chinese economy will grow 1.9 percent, 0.9 point higher than its earlier forecast, and the Japanese economy will shrink 5.3 percent, up 0.5 point from the earlier projection.

    "The global economy started to climb from the depths to which it had plunged in April," when many countries resorted to lockdown measures to slow the spread of the novel coronavirus, the Washington-based institution said in the report.

    It also said "sizable, swift and unprecedented fiscal, monetary, and regulatory responses" have so far prevented a recurrence of serious market turmoil as seen in the global financial crisis triggered by the collapse of Lehman Brothers in 2008.

    Nonetheless, the "shock" from the pandemic has been very large compared to the global financial crisis when the world economy shrank 0.1 percent, making the current economic downturn "the worst crisis since the Great Depression" in the 1930s, IMF chief economist Gita Gopinath said at a press conference.

    The IMF also warned in the report that while the swift recovery in China has surprised on the upside, the global economy's "long ascent back to pre-pandemic levels of activity remains prone to setbacks" as the pandemic shows no sign of abating.

    As for 2021, the IMF said it expected the world economy to rebound to a positive growth rate of 5.2 percent, 0.2 point lower than the June estimate, amid the likelihood of persistent social distancing to slow the spread of the virus.

    The IMF compared the latest economic outlook projections after revising its June forecast and other figures based on new statistical estimates for better cross-country comparisons of economic data.

    The original June estimate of the global growth outlook for 2020 was for a 4.9 percent contraction but has been revised to a 5.2 percent decline. Global growth in 2019 was also revised to a 2.8 percent increase from a 2.9 percent increase.

    In the October outlook, the IMF said China has seen economic activity normalize faster than expected after most of the country reopened in early April, with public investment partly leading to the positive growth logged in the April-June quarter.

    The Chinese economy is expected to expand 8.2 percent in 2021, unchanged from the June estimate.

    Japan, whose economic contraction this year is expected to come near the level seen during the global financial crisis, is projected to post a growth of 2.3 percent in 2021, down 0.1 point from the June forecast.

    Gopinath said Japan has been able to control the pandemic "quite well" and its economy has been supported by abundant fiscal and monetary support. But she added that possibly sluggish external demand and challenges stemming from an aging population are factors that should be considered in the course of the country's recovery.

    The United States and the euro area, where both economies contracted at a historic pace in the second quarter but less severely than projected, expect a 4.3 percent and 8.3 percent contraction this year, respectively. The figures are 3.7 points and 1.9 points higher than the earlier estimates.

    Global trade volume, meanwhile, is expected to dive 10.4 percent in 2020, a pace similar to 2009 at the height of the global financial crisis, but is seen increasing 8.3 percent the following year, according to the IMF.

    The downside risks ahead include recurring virus outbreaks, which could lead to renewed social distancing measures and tighter lockdowns, premature withdrawal from fiscal support measures, and increasing confrontation between the United States and China on numerous fronts, including trade and technology, the IMF said.

    Global growth is expected to gradually slow to about 3.5 percent into the medium term, as the current deep economic downturn and the uncertain outlook will continue to weigh on the labor market and investment. Widespread school closures would also lead to the loss of human capital accumulation.

    "The cumulative loss in output relative to the pre-pandemic projected path is projected to grow from $11 trillion over 2020-21 to $28 trillion over 2020-25," Gopinath said, adding, "This represents a severe setback to the improvement in average living standards across all country groups."

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