The International Monetary Fund’s (IMF) most recently updated global growth forecast is gloomier than the last.
The IMF forecast global growth of -4.9% for 2020, down from the -3.0% forecast previously released in April.
“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. In 2021 global growth is projected at 5.4 percent,” the IMF said in its June economic outlook update. “Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. 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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While China had largely reopened its economy by April and has taken steps toward a semblance of normalcy, much of the rest of the world continues to battle the pandemic, particularly the U.S., Brazil and India.
As a result, Q1 global trade contracted by 3.5% year over year, “reflecting weak demand, the collapse in cross-border tourism, and supply dislocations related to shutdowns (exacerbated in some cases by trade restrictions).”
“Strong multilateral cooperation remains essential on multiple fronts,” the IMF continued. “Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis.”
By country, the IMF forecast growth rates of:
- U.S.: -8.0% (2.3% in 2019)
- Japan: -5.8% (0.7% in 2019)
- U.K.: -10.2% (1.4% in 2019)
- Germany: -7.8% (0.6% in 2019)
- Canada: -8.4% (1.7% in 2019)
- China: 1.0% (6.1% in 2019)
- India: -4.5% (4.2% in 2019)
- Brazil: -9.1% (1.1% in 2019)
- Mexico: -10.5% (-0.3% in 2019)
Despite the gloomy economic forecasts and lingering uncertainty regarding the longevity of the COVID-19 pandemic, the IMF did note some factors meriting some degree of optimism, among them being the slight recovery in oil prices after reaching historic lows earlier this year.
“Stability in the oil market has also helped lift sentiment,” the IMF reported. “West Texas Intermediate oil futures, which in April had sunk deep into negative territory for contracts expiring in the early summer, have risen in recent weeks to trade in a stable range close to the current spot price.”
Last month, MetalMiner’s Stuart Burns weighed in on the oil price’s near-term prospects, noting a true bounce-back is likely not in the offing.
“This is the case despite efforts to cut production, as the market remains in massive surplus and the devastation of the coronavirus pandemic depresses consumption (even among economies supposedly coming out of lockdown),” he wrote May 13.
“Unemployment has skyrocketed and despite government hopes it will be short term, the reality is levels will remain elevated, depressing growth and demand.”
The IMF agrees, noting the oil price will likely take some time to recover.
“The assumptions on fuel prices are broadly unchanged from the April 2020 WEO,” the IMF stated. “Average petroleum spot prices per barrel are estimated at $36.20 in 2020 and $37.50 in 2021. Oil futures curves indicate that prices are expected to increase thereafter toward $46, still about 25 percent below the 2019 average.”
As for currencies, the U.S. dollar firmed earlier this year; the dollar index jumped to just under 103 in late March, right as coronavirus impacts started to be felt around the country. The dollar has softened in the three months since, dropping to just over 97 as of Wednesday.
“Exchange rate changes since early April have reflected these developments. As of mid-June, the US dollar had depreciated by close to 4 percent in real effective terms (after strengthening by over 8 percent between January and early April),” the IMF report states. “Currencies that had weakened substantially in previous months have appreciated since April—including the Australian dollar and the Norwegian krone, among advanced economy currencies, and the Indonesian rupiah, Mexican peso, Russian ruble, and South African rand, among emerging market currencies.”
A consistent theme pervades the IMF’s latest outlook: the only certainty right now is uncertainty.
What happens next largely depends on countries’ ability to control the spread of the coronavirus pandemic and, in places that have largely done just that, prevent its resurgence.
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As such, it is worth noting the U.S. recorded its highest single-day total of new coronavirus cases on Wednesday and on Sunday the World Health Organization reported over 183,000 new cases were tallied worldwide, marking a new single-day record.