- Second- and third-quarter growth was better than expected, but the global economy is still a long way from full recovery, Kristalina Georgieva, managing director of the International Monetary Fund, said in a Tuesday speech.
- The IMF will make a “small upward revision” to its 2020 growth forecast next week after estimating a 4.9% annual contraction in June, she said.
- Still, all countries now face “a difficult climb that will be long, uneven, and uncertain,” Georgieva warned.
- For one, the use of unprecedented fiscal aid will bring the global public debt balance to a record-high 100% of GDP in 2020, according to the IMF.
- Uncertainty around the coronavirus’s trajectory also poses a significant risk to recovery efforts, Georgieva said.
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The global economy is recovering faster than expected but still faces a lengthy and arduous return to pre-pandemic levels, Kristalina Georgieva, managing director of the International Monetary Fund, said.
The organisation is set to reveal its updated growth forecast next week after projecting a 4.9% contraction in global gross domestic product in June. The new estimate should skew to the upside, Georgieva said a Tuesday speech. Growth in the second and third quarters exceeded estimates thanks to major economies providing roughly $US12 trillion in fiscal stimulus. In all, the IMF will soon make a “small upward revision” to its 2020 growth forecast, the managing director said.
Yet the world’s battle with the coronavirus and its economic toll is far from over. Next year will bring “a partial and uneven recovery” as major economies roar back to life and emerging markets face a riskier rebound, Georgieva said.
“All countries are now facing what I would call ‘the long ascent,’ a difficult climb that will be long, uneven, and uncertain. And prone to setbacks,” she added.
One such setback will likely be the unwinding of unprecedented stimulus. The IMF expects global public debt to reach 100% of global GDP for the first time ever in 2020, leaving countries at heightened risk of a credit downgrade should revenues fail to recover.
Permanent job losses and bankruptcies can also stifle a bounce-back. While GDP may swing higher for the foreseeable future, global output will trend below pre-pandemic projections for the medium term, Georgieva said. The output slump will also slow improvements to living standards.
Economies’ climbs to past highs will also take place amid “extraordinary uncertainty,” the managing director said. The rollout of a coronavirus vaccine and effective containment measures could accelerate a country’s ascent. Similarly, fresh outbreaks and renewed lockdowns could drag economies back into steep recessions.
Countries should prioritise defending citizens’ health, avoiding premature stimulus withdrawal, employing flexible forward guidance, and dealing with newly boosted debt balances, Georgieva said. The path ahead is a bumpy one, but it presents economies with the chance to resolve lingering issues, she added.
“We cannot afford simply to rebuild the old economy, with its low growth, low productivity, high inequality, and worsening climate crisis,” the managing director said.
She continued: “We know that previous generations had the courage and resolve to climb the mountains they faced. It is now our turn.”
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