CAPE TOWN - The International Monetary Fund (IMF) yesterday revised global growth 6.3percent downwards from its January estimates, charging that lockdowns implemented in most countries to deal with the coronavirus pandemic would lead to the worst recession since the Great Depression of the 1930s and would be worse than the 2008 financial meltdown.
The lender said the global economy would decline -3percent this year, with South Africa expected to decelerate to -5.8percent as a result of the pandemic.
“As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown,” the IMF said in this month’s world economic outlook. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”
The IMF said although governments were providing unprecedented support to households, businesses and financial markets, there was considerable uncertainty about what the economic landscape would be after the pandemic. It said its forecast assumed that the pandemic and required containment would peak in the second quarter and recede in the second half of this year.
The lender said if the pandemic faded as predicted and policy actions were effective in preventing widespread bankruptcies, job losses, and system-wide financial strains, global growth would rebound to 5.8percent next year. “This recovery in 2021 is only partial, as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” the IMF said.
The cumulative loss to global gross domestic product this year and the next from the pandemic could be about $9trillion (R167trillion), greater than the economies of Japan and Germany combined. The IMF said emerging and developing economies faced additional challenges with “unprecedented reversals in capital flows” as global risk appetite waned and currencies faced more pressure.
It said economies such as South Africa’s entered the pandemic in an already vulnerable state with sluggish growth and high debt levels.
The IMF said it would deploy its R1trillion lending capacity to support vulnerable countries, including through rapid-disbursing emergency financing and debt service relief to our poorest member countries, and it was calling on official bilateral creditors to do the same.
Momentum Investments economist Sanisha Packirisamy said this week that the barrage of fiscal and monetary policy measures enacted by global and South African policymakers should induce a lagged cyclical recovery in global growth in the aftermath of Covid-19.
“Once the effect of the virus has played out, global supply chains become unblocked again and isolation measures cease, there will be a significant rebound in global economic growth and company profits on the back of normalisation in economic activity and the lagged effect of massive policy stimulus undertaken during the crisis,” she said.
This economic rebound was expected to ignite renewed risk appetite by global investors and would be discounted by rising risky asset prices ahead of the time.
“Whether this is already happening or will only occur within the coming months depends on how the Covid-19 pandemic plays out,” she said.