The coronavirus pandemic has caused wider and deeper damage to economic activity than first thought, the International Monetary Fund said on Wednesday, prompting the institution to slash its 2020 global output forecasts further.
The IMF said it now expects 2020 global output to shrink by 4.9%, compared with a 3.0% contraction predicted in April, when it used data available as widespread business lockdowns were just getting into full swing.
A recovery in 2021 also will be weaker, with global growth forecast at 5.4% for the year compared to 5.8% in the April forecast. The Fund said, however, that a major new outbreak in 2021 could shrink the year's growth to a barely perceptible 0.5%.
Although many economies have begun to reopen, the Fund said that the unique characteristics of lockdowns and social distancing have conspired to hit both investment and consumption.
"We are definitely not out of the woods. We have not escaped the Great Lockdown," IMF Chief Economist Gita Gopinath told a news conference. "Given this tremendous uncertainty, policymakers should remain vigilant."
The IMF views the current recession as the worst since the 1930s Great Depression, which saw global GDP shrink 10%, but Gopinath said that the $10 trillion in fiscal support and massive easing by central banks had so far prevented large-scale bankruptcies. More support will be needed, she added.
Advanced economies have been particularly hard-hit, with U.S. output now expected to shrink 8.0% and the euro zone 10.2% in 2020, both more than 2 percentage points worse than the April forecast, the IMF said.
Latin American economies, where infections are still rising, saw some of the largest downgrades, with Brazil's economy now expected to shrink 9.1%, Mexico's 10.5% and Argentina's 9.9% in 2020.
China, where businesses started reopening in April and new infections have been minimal, is the only major economy now expected to show positive growth in 2020, now forecast at 1.0% compared to 1.2% in the April forecast.