The International Monetary Fund updated its predictions for the COVID-19 recession June 24, saying its April prediction was not severe enough. The IMF now anticipates the global economy to contract by 4.9% in 2020, or 1.9 points more than it expected in April. The GDP of advanced economies, including the United States, are expected to shrink by a crushing 8.0%.
Depending on how the pandemic evolves, the updated forecast anticipates persistent social distancing in the first half of 2020, more lasting damage to suppliers from the first two quarters of 2020, and suppressed productivity in businesses incorporating extensive workplace safety procedures. But it also lacks information on a host of pandemic-related unknowns: the long-term effect of COVID-19 related layoffs and furloughs, the length of voluntary social distancing, the impact of doing business with costly safety practices, and how effectively companies reconfigure their international supply chains.
The new report builds on and updates the Fund’s April 2020 World Economic Outlook forecast. Data available for the April forecast indicated an “unprecedented decline” due to the pandemic, but according to the IMF, “data releases since then suggest even deeper downturns than previously projected for several economies.” The IMF stood by its prediction of a slow, steady recovery in 2021, except in the case of a “second wave” of COVID-19 infections.
The updated report was released a day after IHS Markit’s Flash U.S. Composite PMI report, which found signs for optimism in the near-term. Their composite U.S. PMI found the softest month-over-month decrease yet in June as the index rose to 46.8% from 37.0 in May. In manufacturing, the PMI added more than ten points to land at 49.6 after reaching 39.8 in May, a four-month high for the figure. IHS Markit attributed the gain to easing lockdowns.
“The second quarter started with an alarming rate of collapse but output and jobs are now falling at far more modest rates in both the manufacturing and service sectors,” said Chris Williamson, Chief Business Economist at IHS Markit. But his group’s measure of the long-term prospects lined up with that produced by the IMF of an unprecedentedly sharp downturn followed by a very slow return to pre-pandemic levels.
“Although brief, the downturn has been fiercer than anything seen previously, leaving a deep scar which will take a long time to heal," said Williamson.
