IMF: 3 ways a bad outlook could get worse

WASHINGTON, USA – The International Monetary Fund (IMF)'s updated forecasts for the global economy this year are bad, with a worldwide contraction of 3% expected in 2020, but the fund's economists outlined 3 ways it could get worse.

Longer lockdown

The current forecast depends on the virus fading, allowing economies to resume normal activity in the 2nd half of the year.

If the containment measures are extended 50% longer than the baseline, causing higher unemployment and more bankruptcies, global growth could be 3% lower, for a 6% decline this year and a weaker rebound in 2021.

New outbreak in 2021

In the 2nd scenario, there is another outbreak next year roughly two-thirds as bad as 2020, which creates economic scarring twice as large as in the first scenario.

In that situation, countries will have limited ability to deploy more spending measures, so global output would be almost 5% below the baseline in 2021. 

So instead of a global rebound of a projected 5.8% next year, there would be a token increase of 0.8%.

Double whammy

The 3rd scenario assumes both things happen: a longer containment and a second outbreak, which would push the global economy 8% below the baseline, for a contraction of 2.2% next year rather than a rebound.

And, the report warns, that projection could underestimate the combined damage of the two scenarios, given rising government debt may make officials unable or unwilling to provide more income support.

"This would lead to even worse outcomes and additional scarring," the report said. –